[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
ADDITIONAL MEDICARE REFINEMENTS TO THE BALANCED BUDGET ACT OF 1997
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JULY 25, 2000
__________
Serial 106-112
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
71-743 DTP WASHINGTON : 2001
_______________________________________________________________________
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
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C O N T E N T S
__________
Page
Advisory of July 18, 2000, announcing the hearing................ 2
WITNESSES
Health Care Financing Administration, Robert A. Berenson, M.D.,
Director, Center for Health Plans & Providers.................. 7
______
American Association of Health Plans, and Ochsner Health Plan,
George Renaudin................................................ 67
American Health Care Association, and Genesis Health Ventures,
Inc., Michael R. Walker........................................ 54
American Hospital Association, and Guadalupe Valley Hospital, Don
Richey......................................................... 45
American Medical Association, Richard F. Corlin, M.D............. 49
National Council on the Aging, Howard Bedlin..................... 72
Visiting Nurse Associations of America, and Visiting Nurse
Corporation of Colorado, Judith G. Sutherland.................. 59
SUBMISSIONS FOR THE RECORD
American Association for Homecare, Alexandria, VA, statement..... 97
American Association of Blood Banks, Bethesda, MD; America's
Blood Centers; and American Red Cross, joint statement......... 101
American Association of Orthopaedic Surgeons, statement.......... 102
American Medical Rehabilitation Providers Association, Edward A.
Eckenhof, statement............................................ 105
American Red Cross, joint statement.............................. 101
America's Blood Centers, joint statement......................... 101
Association of periOperative Registered Nurses, Denver, CO,
statement...................................................... 108
Eckenhof, Edward A., American Medical Rehabilitation Providers
Association, statement......................................... 105
Falberg, Warren C., Visiting Nurse Association, Cincinnati, OH,
letter......................................................... 149
Fleetwood, Jim, Rural Hospital Coalition, statement.............. 140
Florida Hospital Association, submitted by Hon. Karen Thurman,
Charles F. Pierce, Jr., statement and attachment............... 111
Franks, Hon. Bob, a Representative in Congress from the State of
New Jersey; Hon. Rodney P. Frelinghuysen, a Representative in
Congress from the State of New Jersey; Hon. Marge Roukema, a
Representative in Congress from the State of New Jersey; Hon.
Frank A. LoBiondo, a Representative in Congress from the State
of New Jersey; Hon. Jim Saxton, a Representative in Congress
from the State of New Jersey; and Hon. Christopher H. Smith, a
Representative in Congress from the State of New Jersey,
statment....................................................... 113
Frelinghuysen, Hon. Rodney P., a Representative in Congress from
the State of New Jersey, statement............................. 113
Gage, Larry S., National Association of Public Hospitals and
Health Systems, statement...................................... 126
Kugler, Ellen J., National Association Urban Critical Access
Hospitals, statement........................................... 129
LoBiondo, Hon. Frank A., a Representative in Congress from the
State of New Jersey, statement................................. 113
Louisiana Association for Behavioral Healthcare, Crowley, LA,
letter and attachments......................................... 115
Mandel, JoAnne, Texas Association of Behavioral Healthcare,
Houston, TX, letter............................................ 146
National Association for Home Care, statement.................... 118
National Association of Long Term Hospitals, Stoughton, MA,
statement...................................................... 123
National Association of Public Hospitals and Health Systems,
Larry S. Gage, statement....................................... 126
National Association Urban Critical Access Hospitals, Ellen J.
Kugler, statement.............................................. 129
Ortho-Clinical Diagnostics, Johnson & Johnson statement and
attachment..................................................... 131
Pierce, Charles F., Jr., Florida Hospital Association, submitted
by Hon. Karen Thurman, statement and attachment................ 111
Pitman, Richard A., Shore Health System, Somers Point, NJ,
statement...................................................... 143
Practice Expense Coalition, et. al., letter and attachments...... 136
Practice Expense Fairness Coalition, et. al., letter and
attachment..................................................... 134
Rash, Marty, Rural Hospital Coalition, statement................. 140
Roukema, Hon. Marge, a Representative in Congress from the State
of New Jersey, statement....................................... 113
Rural Hospital Coalition, Wayne T. Smith; Jim Fleetwood; and
Marty Rash, statement.......................................... 140
Saxton, Hon. Jim, a Representative in Congress from the State of
New Jersey, statement.......................................... 113
Shore Health System, Somers Point, NJ, Richard A. Pitman,
statement...................................................... 143
Smith, Hon. Christopher H., a Representative in Congress from the
State of New Jersey, statement................................. 113
Smith, Wayne T., Rural Hospital Coalition, statement............. 140
Society of Thoracic Surgeons, and American Association for
Thoracic Surgery, joint statement.............................. 144
Texas Association of Behavioral Healthcare, Houston, TX, JoAnne
Mandel, letter................................................. 146
Visiting Nurse Association, Cincinnati, OH, Warren C. Falberg,
letter......................................................... 149
ADDITIONAL MEDICARE REFINEMENTS TO THE BALANCED BUDGET ACT OF 1997
----------
TUESDAY, JULY 25, 2000
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, D.C.
The Subcommittee met, pursuant to notice, at 1:09 p.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
July 18, 2000
No. HL-15
Thomas Announces Hearing on
Additional Medicare Refinements
to the Balanced Budget Act of 1997
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 further refinements to the Medicare provisions
in the Balanced Budget Act of 1997 (BBA) (P.L. 105-33). The hearing
will take place on Tuesday, July 25, 2000, in the main Committee
hearing room, 1100 Longworth House Office Building, beginning at 1:00
p.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:
In 1997, Congress passed the BBA, which made the most extensive
changes to the Medicare program since its inception in 1965. Among the
300 Medicare provisions in the BBA were efforts to reduce waste, fraud
and abuse, expand coverage of preventive benefits, establish new
payment methodologies for different Medicare providers, and create the
Medicare+Choice managed care risk program. When the bill was passed,
the Congressional Budget Office (CBO) estimated Medicare savings of
$112 billion over five years.
As with any major legislation involving such sweeping fundamental
change, there have been unanticipated and unintended consequences for
health care providers and implementation delays and problems within the
Health Care Financing Administration (HCFA) that have affected the
delivery of services to seniors. Understanding the need for fine-
tuning, last year, Congress passed the Medicare, Medicaid, SCHIP
Balanced Budget Refinement Act of 1999 (BBRA), as incorporated in the
Consolidated Appropriations bill for fiscal year 2000 (P.L. 106-113) .
The BBRA contained a number of provisions aimed at strengthening
Medicare, including assistance for hospitals, particularly in rural
areas, nursing homes, home health, and the Medicare+Choice program.
Additionally, the BBRA provided and clarified beneficiary protection
from high out-of-pocket copayments for certain health services. The CBO
estimated that the BBRA provisions would increase Medicare spending by
$16 billion over five years.
Even with these Medicare program improvements, the Subcommittee
continues to monitor the impact of the BBA on all types of providers
and oversee the implementation of the BBA, including the prospective
payment systems it established. The Subcommittee periodically assesses
whether further refinement of the BBA is warranted and what types of
changes may be appropriate.
In announcing the hearing, Chairman Thomas stated: ``Both Congress
and the Administration must remain vigilant. Problems continue to arise
in the implementation of this landmark legislation. Last year, Congress
responded to concerns in a bipartisan fashion, making meritorious
refinements where necessary without threatening the achievements
associated with the 1997 legislation. I have always said that where
inequities still persist, we will examine the possibility of further
refinements. I hope that Congress and the Administration will work
together again to ensure seniors get the health care services they
need.''
FOCUS OF THE HEARING:
The hearing will provide the opportunity to hear from
Administration officials and health care providers about the impact and
implementation of the BBA and the BBRA.
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 or MS Word format, with their name, address,
and hearing date noted on a label, by the close of business, Tuesday,
August 8, 2000 , 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.
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Committee.
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will rely on electronic submissions for printing the official hearing
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The above restrictions and limitations apply only to material being
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Note: All Committee advisories and news releases are available on
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Committee Seeks to Assist Persons with Disabilities at the
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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. Please find your seats.
Almost 3 years ago, Congress passed the Balanced Budget Act
of 1997, which made Medicare payment and benefit reforms really
unseen since the inception of the program. This landmark
legislation has strengthened Medicare substantially. It
expanded coverage of preventive benefits for seniors, including
PAP smear tests, colorectal cancer screenings, osteoporosis and
other much-needed preventive benefits.
It injected much-needed new flexibility for seniors'
different health care preferences by creating the Medicare Plus
Choice program. It provided new tools to combat health care
waste, fraud and abuse that has resulted in savings to the
program, and it has helped improve its efficiency.
Finally, the Balanced Budget Act adjusted payments to
providers, and it introduced reforms in fee-for-service
programs, such as the Prospective Payment Systems, that have
resulted in more accurate payments and have contributed to the
extended solvency of the part A trust fund.
When we formulated and enacted the so-called BBA, Congress
relied on the data and estimates available at the time, as we
always do. The Health Care Financing Administration has
implemented most of the more than 300 changes to Medicare that
the law required. In some cases, HCFA has missed deadlines for
implementation or has developed policies that, upon more recent
data, require further refinement.
Last year, Congress recognized that such sweeping changes
in payment policy often require some degree of fine-tuning. In
response to HCFA's delays, and implementation problems and
financial data on the BBA's impact on providers, Congress, in
cooperation with the administration, passed the Balanced Budget
Refinement Act, which restored more than $16 billion to
hospitals, nursing homes, home health care, Medicare Plus
Choice and rural health programs.
Perhaps most important, though, the Balanced Budget
Refinement Act contained provisions that directly addressed the
needs of seniors, limiting the outpatient hospital copayment,
increasing payments for PAP smears, and extending benefits for
immunosuppressive drugs.
It is worth noting at the beginning of this hearing that
the Balanced Budget Refinement Act's relief for providers, $10
billion of the $16 billion is not scheduled to be paid to
providers until fiscal year 2001 and fiscal year 2002. Those
asking for additional relief should keep in mind this important
fact. The request is for legislation to be laid on top of
legislation. We have the Refinement Act, and we are talking
about a further Refinement Act. One was a 5-year period. This
one will be a 5-year period, running concurrently in certain
fiscal years.
As Congress evaluates the need for further refinements this
fall, we will be factoring in the Balanced Budget Refinement
Act payment schedule of funds that providers have yet to
receive.
That said, early this year I made the point that the
Subcommittee would monitor the continued impact of the BBA on
all types of providers. We are willing to consider limited
changes to the BBA to address the remaining unanticipated or
unintended consequences stemming from this historic
legislation. Our goal is not to undo the legislation, it is to
refine the legislation. And if refinements are necessary, I am
hopeful that a bipartisan consensus can be achieved and that a
cooperative working environment between the Congress and the
administration will prevail. The time will be relatively short
for us to respond, but as in the past, we have on these
matters.
I am pleased that HCFA here is to provide a progress report
on BBA implementation and technical assistance on Medicare
payment areas that need further improvement or of difficulties
in implementing provisions that they have been entrusted to
implement. And additionally, of course, we are going to hear
from people who will tell us about the state of their delivery
of health services in all parts of the country.
I look forward to a productive dialog on what specific
additional refinements are needed to improve the payment
structures in the Medicare Program. And with that, I turn to my
colleague from California for any opening remark he may have.
Mr. Stark. Thank you, Mr. Chairman for this hearing.
I would just like to remind our witnesses, and I am sure
the members don't need this, but Medicare was a program set up
in 1965 to help the Nation's seniors and disabled. It is not a
provider welfare program, and it is not meant to be designed
for the providers first and beneficiaries as a secondary
afterthought.
A second reminder, that the savings that we achieved under
your leadership in 1997 were, and are, incredibly important in
stopping outrageous and unnecessary inflation in the program.
The savings extended the life of the program and saved
beneficiaries and taxpayers hundreds of billions of dollars in
the years to come.
Many providers make the case that we ``saved more than CBO
expected to,'' so we should give it back. A large part of the
reduced Medicare spending was, in fact, due to lower general
inflation rates and a renewed commitment by HCFA to antifraud
efforts. And surely none of our witnesses today are going to
advocate higher inflation or more fraud and abuse.
It is important that we not casually throw away the gains
made in the 1997 reforms. We should only restore spending where
there is evidence that we need to do so to protect
beneficiaries. Remember, that every dollar we give back in part
A reduces the life of the trust fund. Every dollar we give back
in part B increases beneficiaries' monthly premiums. Over the
next 30 years, the number of people--and I don't have to remind
the Committee--on Medicare will double, from 40 to 80 million,
and the numbers of taxpayers we expect to decline.
We face a long-run problem and we should ask whether a
provider give back helps us with that long-run problem. If we
give back money, we should use it to help beneficiaries deal
with the shortfalls on their side of the program. We need a
good prescription drug benefit. We should greatly improve the
preventive care benefits and actually eliminate the need for
co-pays and deductibles in the use of preventive benefits. We
should accelerate the work started by you, Mr. Chairman, in
lowering the hospital outpatient department co-pays. It is
going to take 40 years to fix that problem. We should speed up
the day that co-pays are all at 20 percent. We should
presumptively now, I believe, enroll low-income seniors in QMB
and SLMB programs to help the poorest seniors.
I hope the witnesses will talk about some of these changes
on behalf of the people the Medicare Program was meant to
serve, and I hope today's witnesses will give us some hard
empirical proof that they deserve help.
A year ago we asked the General Accounting Office to study
whether Medicare was paying hospitals more or less than managed
care plans were paying hospitals for a similar case. The data
is just coming in, and many hospitals fought this project and
refused to cooperate. GAO went over to 100 hospitals for data,
and they only got data from a sample of 51. Basically, the
GAO's draft report finds that Medicare payments were 9 percent
above Medicare costs. Managed care plans were 7 percent higher
than costs. Since Medicare is paying more than cost-conscious
managed care plans, the question comes up of why we should
increase the annual update to Medicare hospitals.
The GAO found that 41 percent of these hospitals had
managed care plan payments less than costs; whereas, only 24
percent of these hospitals had Medicare payments less than
costs. That raises the key question: If we pay hospitals more
with taxpayer dollars from Medicare, will they just keep
signing low-ball contracts with the managed care plans? If the
GAO's data is accurate, we might as well write our checks to
Aetna and Pacific Care directly.
Mr. Chairman, I look forward to the testimony.
Chairman Thomas. Thank the gentleman.
Any other comments members may have can be submitted for
the record.
Statement of Hon. Jim Ramstad, a Representative in Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this hearing today to
assess additional Medicare refinement requests to the Balanced
Budget Act of 1997.
Like all of my colleagues on this panel, I have been
hearing a great deal from providers about the concerns they
have about current payment policies. I take their pleas for
changes, especially from those providers in Minnesota, under
serious advisement.
At the same time, however, I take the input from the
General Accounting Office and MedPAC equally seriously. After
all, they were established to provide us this independent,
unbiased information to help us make our policy decisions.
Input from these two groups has been pivotal to Congress long
before I was elected.
How is it that some providers claim need for assistance,
while GAO and MedPAC have stated that, for some certain
industries, there is little or no evidence that spending
reductions have hurt beneficiary access to care?
How can the numbers literally be black and red at the same
time?
That's why this hearing today is so crucial for helping us
evaluate the implementation of the BBA and the BBRA. Why are we
saving so much more than expected under the BBA? Why are some
providers still not feeling the positive effects of the $16
billion we put back into the system last year? Are there any
health care services that seniors need to fear losing access to
because of reimbursement levels? Are there rules, regulations
and bureaucratic hurdles that are limiting access to care and/
or increasing provider costs unnecessarily?
Mr. Chairman, thanks again for holding this hearing. I look
forward to learning more from today's witnesses about what
changes may need to be made to the Medicare system.
And I wanted, on the gentleman from California's comments
about the Congressional Accounting Office, we purposefully did
not have the GAO at this hearing because they were in
attendance at the Health Subcommittee of the Commerce
Committee, just as the Health Care Financing Administration was
not at the Commerce Committee. It is not by accident, it is by
intention that these two hearings, last week and this week, be
complementary, giving us a broader coverage on this question.
And with that, I would turn to Dr. Berenson, the director
of the Center for Health Plans and Providers, indicating that
your written testimony will be made a part of the record, and
you may address us any way you see fit in the time that you
have.
Dr. Berenson, thanks for being with us.
STATEMENT OF ROBERT A. BERENSON, M.D., DIRECTOR, CENTER FOR
HEALTH PLANS & PROVIDERS, HEALTH CARE FINANCING ADMINISTRATION
Dr. Berenson. Distinguished Subcommittee members, thank you
for inviting us to discuss further adjustments to the Balanced
Budget Act. Congress and the administration worked together to
enact this historic law. Many BBA payment changes were
justified and have contributed to improved efficiency and the
unprecedented fiscal health of the Medicare Trust Fund.
The Prospective Payment Systems mandated by the BBA are
particularly important because they create incentives to
provide care more efficiently. However, these new payment
systems mark a substantial departure from cost--and charge-
based reimbursement, and the transition can be challenging for
providers.
We have all heard reports from health care providers of
financial difficulties, in part, related to BBA changes, and we
are concerned about the potential for reduced access to quality
care. To address this, the President worked with Congress to
increase home health care payments in 1998. We worked together
again last year on the Balanced Budget Refinement Act to make
adjustments for several types of providers. And we have taken
several administrative actions to smooth the transition to new
policies and help health care providers adjust.
It appears, however, that some problems persist. We believe
further prudent adjustments are warranted to protect access to
quality care, and we want to work with the Committee, as we
have done in the past, on legislation to make needed
adjustments.
The President's mid-session budget proposal includes
numerous adjustments to increase payments by $21 billion over 5
years to hospitals, rural providers, teaching facilities,
nursing homes, home health agencies, managed care plans and
other providers. This includes $9 billion over 5 years to delay
further BBA payment reductions, and it includes $11 billion
over 5 years in unspecified funds for use in developing
additional adjustments.
The improved status of the trust fund and the growing
budget surplus make it possible to pay for these adjustments
while still achieving our goal of extending trust fund solvency
through 2030 and making an affordable voluntary prescription
drug benefit available to all beneficiaries.
I want to spend a couple of moments on two particular
programs that deserve special attention today. The first are
nursing home payments. We are continuing to work to refine the
payment classification system in a budget-neutral way to ensure
adequate payment for medically complex patients in skilled
nursing facilities, and particularly to account more
specifically for the costs of drugs and other nontherapy
ancillary services. To immediately address industry concerns,
the BBRA provided for a 20-percent increase in the SNF
prospective payments for 15 categories of patients to address
perceived shortfalls in payments for such patients until we
were able to determine the best way to make these changes. And
those increased payments are now being received.
Using the best data available in 1998, we developed two
payment classification models we believed would ensure adequate
payment for complex patients. We issued a proposed rule in
April of this year which included refinements based on these
models and solicited public comments. In addition, we
contracted with outside experts to validate the models using
more recent data.
When we tested the models with nationwide data from 1999
over the past few months, we found that the models were no
longer statistically significant in identifying high-cost
beneficiaries with complex needs and the ancillary services
they use. Proceeding with implementation of these proposed
refinements based on these models could have changed payment
levels without any assurance that we were distributing funds
more equitably, creating incentives for efficient care and
minimizing the risk of negative financial consequences.
Accordingly, today we put on display the final rule
deferring the implementation of these refinements. We will
shortly begin consulting with outside researchers and experts
to begin further analysis using 1999 national data aimed at
determining the feasibility of developing case-mix refinements
that reflect current practice. Our goal is to include a
proposal for such refinements, as soon as possible. However,
until a feasibility study is completed, we will be unable to
accurately forecast the potential and timing of such
refinements. In the meantime, the 20-percent increase in
payments included in the BBRA will remain in place until
refinements of the system can be implemented, which will be in
fiscal 2002 at the earliest. In addition to the 20-percent
increase, the BBRA also provided a 4-percent increase in
payments for all SNF beneficiaries, effective October 1 of
2000.
The other comment relates to the Medicare Plus Choice
program, and we released the numbers just yesterday about the
numbers of withdrawals. It exceeded 900,000 beneficiaries
affected by withdrawals. In addition to the specific fee-for-
service provider payment adjustments listed above then, the
President's plan would provide an estimated $25 billion over 5
years to Medicare Plus Choice plans specifically for drug
coverage. This is important because Medicare Plus Choice plans
are finding it difficult to adjust to the BBA changes, while
maintaining the extra services not available in the Medicare
fee-for-service program and especially prescription drug
coverage.
Even with the BBA changes, payments to M Plus C plans
continue to exceed what taxpayers would spend for enrollees if
they had remained in the fee-for-service program, but lack of
payment to support drug coverage has led plans to significantly
reduce the scope of their prescription drug coverage. And it is
the primary reason that some plans are leaving the program.
The best way to ensure that the Medicare Plus Choice
program is a strong part of Medicare is to ensure that all
beneficiaries have access to affordable drug coverage and to
pay plans directly for providing it. The President's proposal
to create a voluntary, affordable prescription drug benefit for
all beneficiaries would do just that. Plans would be paid
directly $2 billion beginning in January of next year and $25
billion over the next 5 years to provide the prescription drug
coverage. This amount substantially exceeds the $15 billion
over 5 years that representatives of the American Association
of Health Plans have said they need to continue participating
in M Plus C.
Beneficiaries in fee-for-service Medicare would also be
able to choose this benefit, regardless of whether they live in
areas with managed care plans. And beneficiaries in plans all
across the country would be assured of drug coverage rather
than just those in areas where nontargeted assistance for plans
would raise payment enough to support a drug benefit.
While it is essential that we maintain the fiscal
discipline embodied in the BBA, it is equally essential that we
make adjustments where necessary to ensure continued access to
quality care and provide access for all beneficiaries to an
affordable and voluntary drug benefit.
I thank you for holding this hearing, and I am happy to
answer your questions. Thank you.
[The prepared statement follows:]
Statement of Robert A. Berenson, M.D., Director, Center for Health
Plans & Providers, Health Care Financing Administration
Chairman Thomas, Congressman Stark, distinguished
Subcommittee members, thank you for inviting us to discuss the
need to make further adjustments to the Balanced Budget Act of
1997 (BBA). Congress and the Administration worked together to
make difficult decisions in enacting this historic law. The BBA
helped to eliminate the deficit, created the State Children's
Health Insurance Program, and reduced and restructured Medicare
and Medicaid payments to health care providers. Many of the
provider payment changes were justified and have contributed to
improved efficiency and the unprecedented fiscal health of the
Medicare Trust Fund.
However, information gathered over the last three years
suggests that some of the policies may have the potential to
affect the quality of and access to health care services. To
address this, the President worked with Congress to increase
home health care payments in 1998. We worked together again
last year in the Balanced Budget Refinement Act (BBRA) to make
several necessary adjustments for several types of providers.
And we have taken several administrative actions to smooth the
transition to new policies and help health care providers
adjust.
It appears, however, that problems persist. We have all
heard reports from health care providers of financial
difficulties--in part related to BBA changes. We are concerned
about the potential for reduced beneficiary access to quality
care. We believe it is warranted to make further prudent
adjustments to ensure that beneficiaries continue to have
access to quality care. And we want to work with this
Committee, as we have done in the past, on legislation to make
needed adjustments.
The President's Mid-session Review proposal includes
numerous adjustments that would increase payments by $21
billion over 5 years ($40 billion over 10 years) to hospitals,
rural providers, teaching facilities, nursing homes, home
health agencies, managed care plans, and other providers.
The President's proposal includes $9 billion over five
years ($19 billion over 10 years) to delay further BBA payment
reductions, many of which are scheduled to occur on October 1,
and includes $11 billion over five years ($21 billion over 10
years) in unspecified funds for use in developing additional
adjustments.
PRESIDENT'S MIDSESSION BUDGET PROPOSAL
Dollars in Billions
------------------------------------------------------------------------
5 Years 10 Years
------------------------------------------------------------------------
HOSPITALS..........
Full inpatient $4 $8
hospital market basket
for `01
Indirect $0.2 $0.2
Medical Education at
6.5 percent for `01:
Repeal $0.2 $0.2
Medicare DSH reduction
for `01:
Freeze in $0.3 $0.3
Medicaid DSH
allotments for `01:
Rural $0.5 $1.0
initiative:
Adjusting $0.05 $0.1
Puerto Rico hospital
payments to 75/25
blend:
Total:............. $5 $10
HOME HEALTH
Delay 15 $1 $1
percent cut in `02:
Full market $1 $2
basket update for `01:
Total:............. $2 $3
NURSING HOMES
Full market $0.6 $1
basket update for `01:
Delay therapy $1 $1
cap changes for an
additional year:
Total:............. $1.6 $2
MEDICARE+CHOICE
Indirect $1 $3
effect of specified
policies:
OTHER
ESRD composite rate $0.2 $0.5
update of 2.4% for
`01:
TOTAL SPECIFIED POLICY $9 $19
COSTS:
UNSPECIFIED PROVIDER $11 $21
RESTORATION POOL:
TOTAL FUNDING: $21 40
------------------------------------------------------------------------
AANOTE: Numbers may not add due to rounding. Ricky Ray and diabetes
increases would be funded out of the unspecified pool.
The BBA's fiscal discipline and our success in fighting
fraud, waste, and abuse have greatly improved the status of the
Medicare Trust Fund, which is now projected to remain solvent
until 2025, 26 years beyond where it was just 8 years ago. The
prospective payment systems mandated by the BBA are
particularly important because they create incentives to
provide care efficiently.
However, these new payment systems mark a substantial
departure from cost-and charge-based reimbursement, and the
transition can be challenging for providers.
The improved status of the Medicare Trust Fund and the
growing budget surplus make it possible to pay for new BBA
adjustments to help providers adjust to these changes while
still achieving the President's goal of extending the Trust
Fund to at least 2030 and adding an affordable, voluntary
prescription drug benefit that is available to all
beneficiaries. In addition to the specific fee-for-service
provider payment adjustments listed above, the President's plan
would provide an estimated $25 billion over five years to
Medicare+Choice plans specifically for drug coverage.
MEDICARE+CHOICE
Medicare+Choice (M+C) plans are finding it difficult to
adjust to the BBA changes while maintaining the extra services
they have provided to beneficiaries in the past. This is
especially true for prescription drug coverage that is not
available in the Medicare fee-for-service program and which
many M+C plans offer, but for which they do not receive
specific payment from Medicare. Many M+C plans were able to
offer drug coverage and other extras because of excessive
payments that were made to them before the BBA.
However, since the BBA was enacted, costs of the extra
benefits provided under many M+C plans--particularly
prescription drugs that are not offered in the Medicare fee-
for-service program--have increased much faster than spending
for services in the Medicare fee-for-service program. Our
success in holding down fee-for-service costs is due in part to
BBA provisions and our fraud, waste, and abuse efforts, as well
as other factors. Because payments to M+C plans do not account
for the costs of services which are not covered in the Medicare
fee-for-service program, plans have significantly reduced the
scope of their prescription drug coverage. For example, in the
last two years, the proportion of plans that limit drug
coverage to $500 or less has increased by 50 percent. In 2000,
about 75 percent of plans limit drug coverage to $1,000 or
less.
Lack of payment to support drug coverage that is not
available in fee-for-service Medicare is a primary reason that
some M+C plans are again announcing that they will leave or
reduce participation in the program, particularly those with
smaller market shares and strong competition. Difficulty in
maintaining provider networks is also a factor, as demonstrated
by a recent Deloitte & Touche report showing that half of the
nation's largest hospitals canceled an HMO contract in the past
year. Because some M+C plans believe that they cannot be
competitive if they charge a higher premium or reduce benefits,
they have simply decided to withdraw from the program. We have
no control over their actions. We do believe, however, that
even with premiums, M+C plans still represent a valuable option
for beneficiaries--particularly as an alternative to Medigap.
For 2001, about 85 percent of current M+C enrollees will be
able to continue with their current HMO. However, 65 M+C
organizations have announced they will leave the program and 53
will reduce their service areas, affecting a total of 934,000
Medicare enrollees. More than 775,000 should have the
opportunity to enroll in another M+C plan, but about 159,000
will be left with no other managed care option and few, if any,
options for affordable drug coverage.
Nonetheless, payments to M+C plans continue to exceed what
taxpayers would spend for enrollees if they had remained in the
fee-for-service program. The General Accounting Office (GAO),
in testimony before Congress last week, affirmed that this is
still the case despite BBA payment changes and that ``Medicare
managed care, although originally expected to achieve program
savings, continues instead to add to program cost.''
The best way to ensure that the M+C program is a strong
part of Medicare and an important option for beneficiaries is
to ensure that all beneficiaries have access to affordable drug
coverage and to pay plans directly for providing it. The
President's proposal to create a voluntary, affordable Medicare
prescription drug benefit for all beneficiaries would do just
that. Under the President's proposal, M+C plans would be paid
through a competitive, market-based process in relation to
their own costs, rather than through Congressionally mandated
administrative prices that have resulted in wide variation in
rates and beneficiary access to plans across the country.
Also, plans would be paid $2 billion directly beginning in
January and $25 billion over the next five years to provide the
prescription drug coverage that most beneficiaries want from
managed care. This amount substantially exceeds the $15 billion
over five years that representatives of the American
Association of Health Plans have said, in testimony before
Congress, they need to continue participating in the M+C
program. Beginning in 2002, beneficiaries in fee-for-service
Medicare would also be able to choose this benefit, regardless
of whether they live in areas where managed care plans have
chosen to operate. And beneficiaries in M+C plans all across
the country would be assured of drug coverage, rather than just
those in areas where non-targeted assistance for M+C plans
would raise payment enough to support a drug benefit.
In addition, under the President's Mid-Session Review
proposal, M+C plans would receive an additional $1 billion over
five years through increases to the payment rates which are
based on the fee-for-service Medicare system. We also announced
on June 19 that we will work with the Medicare Payment Advisory
Commission (MedPAC), plans, beneficiary groups and others to
develop a slower phase-in of the current schedule for risk
adjustment, administratively addressing the concerns about the
current schedule, while maintaining our commitment to using
comprehensive outpatient data beginning in 2004.
Meanwhile, to make sure that Medicare is a fair business
partner, we have been streamlining the requirements for M+C
plans while making sure that beneficiaries who choose managed
care receive the benefits, protections, and information they
need and deserve. We have modified many requirements in our
contracts and operations to be more consistent with private and
other public purchasers, and we are implementing additional
initiatives to further streamline administrative procedures and
lead to more efficient and consistent oversight. Specifically,
we are:
Increasing flexibility in establishing a provider
network, which will allow health plans greater opportunity to
serve rural areas;
Improving freedom of choice by allowing plans to
offer beneficiaries a point of service option that broadens
access to health care services from both in-network and out-of-
network providers; and
Easing compliance plan reporting by eliminating
the self-reporting requirement.
Medicare beneficiaries should know that, regardless of the
decisions made by private HMOs, they are still covered by a
strong Medicare program. Their HMO is required to cover them
until December 31, 2000. We are continuing to take strong steps
to ensure that, no matter what decisions plans make about their
participation in the program, Medicare beneficiaries affected
by these changes have options. We are ensuring that
beneficiaries who are being forced to change their health care
coverage are guaranteed access to certain Medigap plans,
regardless of any preexisting conditions, as the law requires.
And, in order to make the transition easier for these
beneficiaries and to help them make the right decisions about
their health care coverage, we are providing them with clear
information on their new options and requiring plans leaving
the program to do the same.
HOSPITALS
Most experts agree that hospitals' financial status has
worsened recently, as a result of several factors. In large
part, this results from private payment reductions. MedPAC has
found that about three-quarters of the decline in total
hospital margins between 1997 and 1998 is due to lower private
payments. While Medicare hospital inpatient margins remain
relatively healthy, more hospitals had negative margins in 1998
than 1996.
Rural hospital inpatient margins dropped by nearly twice as
much as urban hospital margins did between 1997 and 1998. Rural
hospitals face special challenges--they tend to be smaller and
often cannot attract or keep health care professionals. They
also are more dependent on Medicare patients and therefore
disproportionately affected by Medicare payment reductions. The
BBRA invested about $1 billion over 5 years to address many of
these problems. However, additional increases appear to be
warranted to help the long term viability of rural hospitals.
Hospitals that serve large numbers of uninsured people also
are strained by the increasing number of uninsured. Some
uninsured use hospital emergency rooms for primary care while
others delay care until problems become more severe and costly.
While the number of uninsured has been rising, Federal payments
to disproportionate share hospitals (DSH) were reduced by the
BBA. This coincided with reductions in payments from private
payers which traditionally had helped fund uncompensated care.
And academic health centers, which play critical roles in
making medical advances, caring for some of the most complex
cases, and providing service to underserved populations, also
have experienced a significant decline in total hospital
margins.
To mitigate these funding problems, allow for more time to
assess the full impact of the BBA and BBRA, and to preserve
beneficiaries' continued access to quality care, the
President's plan would:
Replace the BBA inpatient hospital update for
inflation, the ``market basket'' (MB) minus 1.1 percentage
points with a full MB update for FY 2001;
Eliminate the BBRA indirect medical education
payment reduction for FY 2001, maintaining the additional
payments for IME at 6.5 percent;
Eliminate BBRA DSH reduction of 3 percent for FY
2001;
Replace the BBA's Medicaid DSH reductions for 2001
with a one-year freeze, so that the Federal share DSH limits
for FY 2000 would also apply in 2001.
Reserve about $1 billion over 10 years for rural
provider policies. This will include policies to improve the
sustainability of rural hospitals, similar to those in the
bipartisan ``Health Care Access and Rural Equality Act of
2000,'' introduced by Sens. Conrad, Daschle and Reps. Foley,
Berry, McIntrye, Pomeroy, Stenholm, Tanner and others. We also
will consider improving equity for rural hospitals in the
Medicare DSH formula.
Provide fairer payments for inpatient services in
Puerto Rico by basing the payments more on the rates that apply
everywhere else in the nation.
The Mid-Session Review plan also modifies the President's
budget savings policies by dropping the fiscal 2003 through
2007 policies to reduce hospital market basket update and
capital payment reductions and to further reduce hospital bad
debt reimbursement. These hospital policies would have saved
more than $25 billion over 10 years (before interactions).
Meanwhile, we have taken steps to help hospitals adjust to
BBA and BBRA changes. Most recently, we delayed implementation
of the outpatient prospective payment system to give both us
and hospitals more time to prepare. We are distressed about
postponing the benefits of this new system for beneficiaries,
but the delay is necessary to be fully prepared for this
substantial change. We also are requesting that hospitals not
collect deductibles or coinsurance from Medicare beneficiaries
beginning August 1 until we notify them of the correct amount.
And we will provide all hospitals with a ``plain language''
flyer to help explain the change to beneficiaries.
To assure as smooth an implementation as possible, we have
undertaken an unprecedented provider education campaign which
has included:
Allowing hospital representatives to attend our
initial training session for intermediaries;
Training sessions, town hall meetings and
satellite broadcasts for providers to explain the new system
and to answer questions;
Use of the HCFA website to post the outpatient
prospective payment system regulation, instructions, training
materials and answers to questions received to date; and
Weekly conference calls since April with provider
associations to keep them apprised of the progress of
implementation.
In addition, we are committed to implementing changes
included in the BBRA to accommodate new technology in the
outpatient prospective payment system. We are expanding the
number of medical devices for which ``pass-through'' payments
will be made and continuing to work with the industry to
determine additional devices for which these payments can be
made. We also have committed to making unprecedented quarterly
updates to the pass-through list to ensure that the outpatient
prospective payment system does not inhibit development and use
of new technologies.
In other steps to help hospitals, we have postponed
expansion of the BBA's ``transfer policy'' for all hospitals
for a period of two years, through 2002. As a result, the
transfer payment policy will apply only to the current 10
Diagnosis Related Group (DRG) categories, as prescribed by the
BBA. We are carefully considering whether further postponement
of this policy is warranted.
We have taken a number of specific administrative steps to
assist rural hospitals. For example:
We have made it easier for rural hospitals, whose
payments are now based on lower, rural area average wages, to
be reclassified and receive payments based on higher average
wages in nearby urban areas.
We are helping rural hospitals adjust to the new
outpatient prospective payment system by using the same wage
index for determining a facility's outpatient rates that is
used to calculate inpatient rates.
We also are working with colleagues at the GAO and
MedPAC to review the impact and appropriateness of the wage
index that is used to factor local health care wages into
Medicare payment rates and generally results in lower payments
to rural hospitals than their urban counterparts.
We also are implementing BBRA provisions, including:
Easing BBA DSH and IME reductions;
Extending the Medicare Dependent Hospital program
through 2005;
Easing requirements for hospitals to qualify as
Critical Access Hospitals;
Allowing urban hospitals to reclassify to rural
areas; and
Allowing Sole Community Hospitals to have payments based on
more recent hospital-specific costs.
HOME HEALTH
There has been a significant decline in home health
spending since the BBA. This is due in large part to
elimination of overpayments, waste, and fraud, but we are
concerned about the potential for access problems in some
situations. GAO, MedPAC and the HHS Inspector General agree
that there does not appear to be system-wide access problems.
However, some studies have suggested that patients who have
long-term conditions may have had increased difficulty in
accessing home health services. The President's plan would:
Replace the current law home health update of
market basket minus 1.1 percentage points with a full market
basket update for FY 2001; and
Delay the BBA's 15 percent reduction for an
additional year until FY 2003.
Home health agencies will be greatly aided by the new home
health prospective payment system that will take effect October
1. There has been a very positive response to our regulation
detailing how this system will work, and the GAO has stated
that it will ``generally provide agencies a comfortable cushion
to deliver necessary services.'' We also have taken steps to
help home health agencies adjust to BBA changes, such as
extending the time to repay overpayments and postponing the
requirement for them to obtain surety bonds.
SKILLED NURSING FACILITIES
The BBA created a new prospective payment system for
skilled nursing facilities (SNFs) that went into effect in
1998. This new system contributed to changes in the SNF market.
Recent GAO and HHS Inspector General studies have found that
SNFs were more cautious about admitting high-cost cases. An IG
study found that 58 percent of hospital discharge planners
reported that Medicare patients requiring extensive services
such as intravenous medications have become more difficult to
place in nursing homes. Additionally, several large private SNF
chains have experienced financial problems that are primarily
due to business practices unrelated to Medicare, but compounded
by Medicare payment changes.
The President's plan would:
Replace the BBA's SNF update of market basket
minus 1 percentage point with a full market basket update for
FY 2001.
Delay for an additional year (until FY 2002) the
application of the therapy caps providing additional time for
development of policies.
Drop the nursing home bad debt reduction budget
proposal.
The BBA limited yearly payments for Part B physical/speech
therapy and occupational therapy to $1,500 each per
beneficiary. This limit meant that a large number of therapy
patients had service use that exceeded the payment limits and
thus paid for services out-of-pocket.
The BBRA put a two-year moratorium on the caps while a
study is being conducted to determine appropriate payment
methodologies that reflect the differing therapy needs of
patients. However, the moratorium may not be long enough to
complete this complicated work.
We are continuing to work to refine the payment
classification system in a budget neutral way to ensure
adequate payment for medically complex patients, and
particularly to account more specifically for the cost of drugs
and other ``non-therapy ancillary'' services. To immediately
address some industry concerns, the BBRA provided for a 20
percent increase in the SNF prospective payments for 15
categories of patients to address perceived shortfalls in
payments for such patients until we are able to determine the
best way to make these changes. We implemented this BBRA
provision in early June, and nursing homes should be receiving
the increased payments for services delivered on or after July
1.
Using the best data available in 1998, we developed two
payment classification models we believed would ensure adequate
payment for complex patients. We issued a proposed rule in
April 2000 which included refinements based on these models and
solicited public comments. In addition, we contracted with
outside experts to validate the models using more recent data.
When we tested the models with nationwide data from 1999 over
the past few months, we found that the models were no longer
statistically significant in identifying high-cost
beneficiaries with complex care needs and the ancillary
services they use.
Proceeding with implementation of the proposed refinements
based on these models could have changed payment levels without
any assurance that we were distributing funds more equitably,
creating incentives for efficient care, and minimizing the risk
of negative financial consequences. We therefore are deferring
the implementation of the refinements.
We will shortly begin consulting with outside researchers
and experts to begin further analysis using the 1999 national
data aimed at determining the feasibility of developing case-
mix refinements that reflect current practice. Our goal is to
include a proposal for such refinements as soon as possible.
However, until a feasibility study is completed, we will be
unable to accurately forecast the potential and timing of such
refinements.
In the meantime, the 20 percent increase in payments
included in the BBRA will remain in place until refinements of
the system can be implemented, which will be in fiscal 2002 at
the earliest. In addition to the 20 percent increase, the BBRA
also provided for a 4 percent increase in payments for all SNF
beneficiaries, effective October 1, 2000.
END-STAGE RENAL DISEASE
Medicare covers about 300,000 people with end-stage renal
disease (ESRD) -people who have diabetes, hypertension or other
diseases that result in severe impairment of kidney function.
Medicare's composite rate (payment rate for outpatient dialysis
services) has not kept pace with the increasing acuity of
patients and cost of services. For the past several years,
MedPAC has recommended updating the payment rate to reflect
these factors.
The BBRA went part of the way to the MedPAC recommendation
by updating it by 1.2 percent in 2000 and plans for another 1.2
percent increase in 2001--the first increases since 1991. The
President's plan would meet the full MedPAC recommendation and
increase rates by 1.2 percent for CY 2001 in addition to the
BBRA increase of 1.2 percent.
OTHER ADJUSTMENTS
The President's plan also drops proposed payment reductions
for laboratories, ambulances, durable medical equipment,
parenteral and enteral nutrients, and prosthetic and orthotics
for fiscal years 2003 through 2007, as well as bad debt
reductions for non-hospital providers, repeal of the BBRA
managed care risk adjustment policy, and the proposal for a
preferred provider option.
We also are continuing with development of additional
prospective payment systems mandated by the BBA for inpatient
rehabilitation facilities, and mandated by the BBRA for
psychiatric hospitals, and long-term care hospitals.
As mentioned earlier, the President's Mid-Session Review
proposal includes $21 billion for unspecified policies. We look
forward to working with Congress to develop additional policies
to help providers adjust to the many BBA changes.
CONCLUSION
While it is essential that we maintain the fiscal
discipline embodied in the BBA, it is equally important that we
make adjustments where necessary to ensure beneficiaries'
continued access to quality care. The improved status of the
Medicare Trust Fund, combined with current budget surplus
projections, provides the flexibility to make the prudent
adjustments we are proposing, as well as to make a voluntary,
affordable Medicare prescription drug benefit available to all
beneficiaries. Enactment of such a benefit is urgently needed
to meet beneficiary needs. It also is the best way to ensure
that M+C plans can provide drug coverage and give beneficiaries
the options Congress intended in the BBA. I thank you for
holding this hearing, and I am happy to answer your questions.
Chairman Thomas. Thank you very much, Dr. Berenson.
Rather than begin the questioning and then come back, we
have a series of votes, and let us say that if at all possible,
the Subcommittee will reconvene at 1:45 or as soon thereafter
as possible.
The Subcommittee stands in recess.
[Recess.]
Chairman Thomas. Thank you very much.
Dr. Berenson, in your testimony, which I note was modified
from the other testimony with new information, we certainly
appreciate the new information, although it is received with
mixed feelings in that it means that another structure and
another deadline has been missed. There may be some crocodile
tears out in the audience based upon the Balanced Budget
Refinement Act safety net, which has just been woven a little
tighter for a little longer for some of these folk, and that
isn't the case for a number of the time lines that need to be
met.
For example, I believe you stated in your testimony the
administration will consider improving the equity for rural
hospitals on the Medicare disproportionate share formula. I
know that hospitals in different settings have different
problems. But one of the concerns we faced for some time is
that those hospitals in rural settings notwithstanding, the
idea that you are supposed to be compensated for who is in the
bed based upon their socioeconomic and age profile, that many
of them, because of the formula, many of the rural hospitals,
because of the formulas, are not getting the money.
And you might recall that in the 1997 legislation, Congress
directed the Secretary to submit a report to Congress by August
5, 1998, on a new payment formula for DSH. Do you know if that
report has been submitted and when, if it has not, it might be?
Dr. Berenson. It has not been submitted. It is in final
clearance at this point. It does deal with the issues of
different thresholds for urban and rural hospitals, but it
should be out very soon.
Chairman Thomas. Okay. I am obviously anxious for that
because that might be something--would it be in time for us to
incorporate it if we were going to make some adjustments
continuing to try to ease the pain in the rural area, that this
formula might be something we could plug into this legislation?
Dr. Berenson. Yes. I believe it should be in time for the
fall's deliberations.
Chairman Thomas. Yes, anything that you could put out in
August we should be able to use for what is now----
Dr. Berenson. I will take that back. I know it is in final
clearance, and I will try to get that out.
Chairman Thomas. Probably in September. That would be very
helpful. I would hate to see it come out October 1, when we
moved legislation in September.
Dr. Berenson. Yes. And it addresses the issue that has come
up about rural--different thresholds for rural and urban
hospitals, so it would be germane.
Chairman Thomas. And in the Balanced Budget Refinement Act,
we directed the Secretary to collect data on compensated care
starting October 1, 2001. Where are we in that process? Do we
have any kind of a structure for collecting that data? Do we
have a date on when that might be out? Again, this is the data
collection on uncompensated care that was directed in the BBRA.
[The following was subsequently received:]
Per the BBRA, hospital data on uncompensated care will begin to be
collected on hospital cost reports for cost reporting periods beginning
on or after October 1, 2001. We currently are working to revise the
claim form to accommodate this requirement. Hospitals will submit a
revised report for data on the costs incurred by the hospital for
providing inpatient and outpatient hospital services for which the
hospital is not compensated, including non-Medicare bad debt, charity
care, and charges for Medicaid and indigent care.
In addition to revising the cost report, we are working to develop
definitions of each type of uncompensated care for which the BBRA
requires data be collected, since the current definitions can and do
vary from state to state.
By September 30, 2002, hospitals will have completed a cost report
that includes these data. Within about six months of that date, we
should have received the majority of these cost reports. By September
30, 2003 most of them will be settled. As such, the earliest the data
we are collecting will be available will be October 1, 2003.
Dr. Berenson. Yes, I do not. I would have to get back to
you on that.
Chairman Thomas. No problem. You just need to get back on
that. Because, again, that is something that we need to, if at
all possible, look at in making adjustments in an area that
rural hospitals do feel some pressure.
On Page 8 of your testimony, you refer to the steps the
Health Care Financing Administration has taken to ease the
transition of the hospital outpatient PPS, and it appears that
we are on the verge of getting that hospital outpatient. And
interestingly enough, just on the verge of actually getting it
done, we are getting some hospital groups indicating that maybe
we need to delay the implementation of the Prospective Payment
System on outpatient because they claim the operational and
information systems needed to implement it aren't ready.
So let me ask you a series of questions. If you have the
responses verbally, I would appreciate them. But if not, we
would like them in writing because this is going to be an area
that we need to take a look at. So the question would go like
this: Has HCFA tested the new system with fiscal intermediaries
in actual hospitals?
Dr. Berenson. Yes, but not a broad--I mean, most of the
testing is happening with fiscal intermediaries. There was
extensive testing this past weekend which went pretty well.
There have been----
Chairman Thomas. When did you start this testing?
Dr. Berenson. Well, there have been a series of steps that
occur first.
Chairman Thomas. Okay.
Dr. Berenson. The CELIP and then the OCE. There are a
number of them. The full implementing system has been in
testing in the recent past, and on a broad scale, on the last
weekend.
I would want to point out that we reluctantly postponed the
effective date of the outpatient system from July 1 to August
1. That is the effective date for date of service for the
beneficiary, and we are pretty confident about that date. The
actual implementation for the release to the fiscal
intermediaries is actually scheduled for 2 weeks later because
of the natural delay in claims submission, the 14-day floor on
payment. So we actually have a few weeks to do that testing.
But we have initiated that testing, and so far it has gone
pretty well.
Chairman Thomas. So you are in the field testing, and you
will test right up to the implementation date or beyond the
implementation date. My assumption is if something falls
through the floor unexpectedly or things just don't work, would
that affect the implementation date or would you anticipate
going forward?
Dr. Berenson. Absolutely. I mean, clearly, we don't want to
postpone it again. For every month that goes by, beneficiary
cost sharing increases about $100 million. We think we will
make these dates. But if it is not working, if we cannot pay
claims, we would postpone it. We also have contingency
planning. If it looks like it is a short window of a few weeks
that we would need, we have a mechanism for providing
accelerated payments to hospitals, and that would be done on an
automatic basis if it is our systems that are not functioning.
So we have a couple of alternatives. I really don't think we
will need to postpone the actual implementation date.
Chairman Thomas. Okay, Doctor. One of the concerns I have
is that as recent as 1 month before the postponement was
announced, we had the administrator here saying that, yes, they
were going to meet the deadline. And the answer, ``We hope we
are going to meet the deadline,'' is okay for the first time
around. This is not the first time around. So if it doesn't
destroy any secret time table that you are working on, this
Subcommittee would very much like to see what a go/no go looks
like to you for the August 1 implementation.
And just a little bit of gaming, and I am not interested in
running this in the newspapers or releasing it, but I would
like to have a comfort level that if, in fact, you decide not
to go August 1, what is it that would determine that you don't
go August 1? And if you do go August 1, what is it that gives
you the confidence level that you can go forward? Because
postponing it again is better than starting and stopping or
forcing us to attach the legislation some time line or criteria
that probably won't work. We will be pushing the string again.
So to create a working environment and a comfort level a
little higher than ``we hope it works this time, and we are
shooting for an August 1 date,'' I would like to see some
structure of a go/no go in the decisionmaking matrix that you
folks are working on.
Dr. Berenson. We can provide that for you, as well as some
of the detail about our contingency planning, about what would
trigger that. And we can provide that for you.
Chairman Thomas. Part of the problem is this Subcommittee
and the Congress has to get a confidence level, so that when
people come to us and say, ``It isn't going to work,'' we have
some substantive ability to say, ``In our opinion, it will, and
if it doesn't, there are reasonable and appropriate fall-
backs.'' Because as you know, this season, for some reason,
there is less oil between the moving parts, and the friction
tends to generate a lot more heat than it should otherwise. And
we will appreciate that kind of information.
[The following was subsequently received:]
The Outpatient Prospective Payment System was implemented by our
revised August 1 deadline, and the majority of claims are being paid on
time.
Thank you.
Chairman Thomas. Does the gentleman from California wish to
inquire?
Mr. Stark. Thank you for your testimony, Doctor.
It is my understanding, just for the record, that you have
more than just academic experience with managed care health
plans, and indeed, started one, ran it efficiently and sold it
at a huge profit. Is that a fair assumption or is that a fair
characterization of your other career?
Dr. Berenson. ``Huge'' is exaggerated.
Mr. Stark. Large.
Dr. Berenson. At a reasonable, yes.
Mr. Stark. A reasonable profit. All right.
Dr. Berenson. It was a----
Mr. Stark. I very seldom hear ``reasonable'' from the
Health Plan Association.
Dr. Berenson. Preferred Provider Organization. It was not
an HMO. It was a local PPO, which was pretty successful.
Mr. Stark. So you understand the business side of----
Chairman Thomas. Would the gentleman yield, briefly?
Mr. Stark. Sure.
Chairman Thomas. Is this line of questioning a positive or
a negative, that someone was out in the real world and made
money, and is now in government service? There have been others
that it didn't tend to be a positive comment about. I am just
curious.
Thank the gentleman for yielding.
Dr. Berenson. It was certainly less than Lynn Abramson or
some of the others, in terms of what they were able to do.
Mr. Stark. I basically have a couple of questions. I will
just try and lay them out and let you deal with them as you
choose.
There have been a lot of Medicare Plus Choice withdrawals,
reductions, reduction in benefits, complete withdrawal, so
forth. Does this argue or does it not argue, one, for a drug
benefit to everyone on Medicare?
Two, the plans say they are underpaid. They are going to
spend $60 million telling the public they are underpaid. Maybe
if they just saved the $60 million they would be all right. The
GAO, the Office of the Inspector General, the Medicare trustees
all say that we are overpaying plans for the people they
actually enroll. Perhaps you can enlighten us on those two
issues.
The third is that the American Association of Health Plans
is lobbying relentlessly for relief from the so-called onerous
burden of collecting physician encounter data, another report
that is due Congress one of these days or may be past due.
Chairman Thomas. Oh, it is past due.
Mr. Stark. Is it past due? Okay.
My question is how will we ever get a risk adjustment
system if we don't get the data? And does it make any sense to
just make risk adjustment revenue neutral? So those are a
series of questions, but can you just comment on that in
general in our time, and then perhaps enlighten us.
Dr. Berenson. I think I would sort of echo the comments of
Bill Scanlon of GAO at the hearing last week, that we pay
health plans more than adequately to provide the statutory
benefits, but perhaps not as much as they are accustomed to
providing a generous level of additional benefits that most
beneficiaries have become accustomed to. We actually have our
own data suggesting that about 24 percent of the payment to
plans is for additional benefits. And what is often not
appreciated is a large part of that, about 15 percent that
makes up the 24 percent is the buy-down cost sharing, and then
the next piece of it goes to actual benefits like prescription
drugs.
So the plans, in aggregate, it is not true in all parts of
the country, we think are being paid for the Medicare benefit,
but need more to attract beneficiaries and are reluctant to ask
beneficiaries to pay out of pocket. Some choose to and some
really feel they can't market that kind of a product and don't
do that.
On the issue of risk adjustment, we actually spent a lot of
time seeing if there was an alternative model of risk
adjustment that did not depend on collecting encounter data
from individual visits and really found flaws with the other
approaches, like sampling or surveys. And really, the models
that are out there really assume encounter data. We are right
now doing a study that was mandated by the BBRA to assess the
difficulties, and there are operational difficulties for plans,
but there is also some lead time.
We have asked plans to start providing encounter data for
outpatient and physician visits this October and January. But
they have about 9 months to actually work out the kinks on how
that happens. It doesn't become the basis for formally
establishing the model or determining their payment until the
middle of next year. So we think we have got adequate lead time
in the current system, but we are actively now assessing and
talking to the plans about the encounter data burden.
And again, finally, on the issue of doing it in a budget
neutral fashion, we believe that plans are overpaid for having
healthier beneficiaries, and it is in the interests of
taxpayers and others to pay appropriately. That will also
provide better incentives for the plans to try to attract
sicker patients.
Mr. Stark. Thank you very much.
Chairman Thomas. Does the gentleman from Louisiana wish to
inquire?
Mr. McCrery. Yes. Thank you, Mr. Chairman.
Dr. Berenson, as you know, the hospital outpatient
regulations are supposed to be implemented on August 1st of
this year. And as you probably also know, a number of hospitals
have expressed concern, asking for another delay, because of
the lack of appropriate software, and their ability to train
personnel, and basically their ability to handle these new
regulations.
Do you have any plans right now to further delay the
implementation of those rules?
Dr. Berenson. We don't. As the chairman asked, he wants us
to identify what our go/no-go criteria area, and we have those,
which we will provide. At this point, we feel pretty confident
that the effective date of August 1st can be met, and the
implementation date, where actual transactions have to occur
and be paid later in the month in August, can be met. We were
late on some of the preliminary elements that make the system
work, but the hospitals have now had many months to prepare for
this. There has been extensive education. It is a major
overhaul. It is probably the most complicated overhaul of a
payment system that we have done.
It, also, I think in retrospect, supports the decision last
year to postpone this with Y2K looming, that this would have
been too complicated to take on last year, as far as the
original implementation date. But at this moment, and I cannot
make an absolute guarantee, and we will provide information to
the Committee about what could change, we are quite confident
that we can make that date. We are in communication with the
various associations who have raised these issues and are
trying to understand their concerns and respond to them.
Mr. McCrery. And in April of this year, HCFA adopted new
regulations which deny a Medicare provider a provider number
for satellite facilities not within the immediate vicinity of
the main campus, so to speak, of a long-term care, acute-care
hospital. And there are two different, and somewhat confusing,
tests to determine whether the immediate vicinity standard is
met.
I have received a complaint from more than one hospital
that has a long-term acute care hospital, and they express a
lot of concern that this is going to really make it difficult
for them to continue operating some of their facilities in
underserved areas.
Are you familiar with this problem? Are you working on it?
We have sent a letter and haven't really gotten anything back
yet. What is the status of that?
Dr. Berenson. Yes, we are aware. This is referred to as the
provider-based criteria in the outpatient rule. And, there is a
reason for it because it is too easy, for example, to have
physicians' offices that are bought by hospitals who really are
not part of the hospital to get higher reimbursement by just
being labeled as part of the hospital.
There is a need to have criteria. One of those criteria was
that the facility in question had to be in close proximity and
serve the same population. Other criteria included that there
is ownership, and joint control, and appropriate supervision
and that they are clinically integrated. Those seem to be
working very well. We have now heard of a number of situations
where the first criterion on the close proximity and the
serving the same population becomes a barrier to what are
deserving satellites or extensions of the hospital. And we have
had a number of conversations with individual hospitals, as
well as trade associations and are relooking at that aspect.
Whether we can, within the current construct of the
regulation, provide some additional guidance or whether we
actually have to do a revision at this moment, I don't know.
But we are actively working on that issue. It is supposed to go
into effect on October 10, and we also recognize that that is
of concern to hospitals. So we are very actively looking at
that particular aspect of the provider-based regulations.
Mr. McCrery. Okay. Well, I am going to yield to Mr.
Johnson. But just let me say that the part of the rule with the
75 percent of people in the same Zip Code or, you know, that is
not only confusing, but it won't work in some areas.
Dr. Berenson. Yes. Well, there was a model for that. It is
what we used for a sole community hospital designation. We
thought it could extend here, but we are now hearing that there
are problems, and we are revisiting that very issue right now.
Mr. McCrery. I would be glad to yield.
Mr. Johnson of Texas. Thank you.
He just brought it up--75 percent of the patients in the
two locations must reside in the same Zip Code area. Are you
telling me that to get medical care now people have to figure
out what their Zip Code is so they can go to the right
hospital? I think that is crazy.
And can you tell me how these tests got into the final rule
without first appearing in the proposed rule?
Dr. Berenson. There were similar, but not identical,
criteria. What we are trying to do here is----
Mr. Johnson of Texas. Well, similar, but not identical;
what do you mean?
Dr. Berenson. Well, there were tests to determine what
proximity was. We really do need to determine that a clinic, as
an example, which is getting the benefit of being a part of a
hospital, meaning the higher payments, as one specific example,
actually, is part of that hospital. One of those tests had to
do with proximity, so that not anybody could just set up a
clinic and say, ``Give me a hospital designation.''
Mr. Johnson of Texas. Well, but how did you pick Zip Codes
for crying out loud? They are crazy all over the country. And
in Dallas, we have a great number of Zip Codes, and the
hospitals concerned, Baylor, for example, is downtown Dallas.
You have got another branch of theirs which sits on the county
line in a different county, but it is on the county line, in a
different Zip Code, and you prohibited them from going to those
two hospitals because obviously the people don't live in that
Zip Code. Now, that is an isolated case.
There are also 50 counties in Texas that don't have HMOs,
and how do you account for people wanting to come from one
county to another to get to a branch? And are your statistics
good? Because I am told they are 1992 statistics. Is that true
or false?
Dr. Berenson. 1992 what?
Mr. Johnson of Texas. Statistics.
Dr. Berenson. 1992.
Mr. Johnson of Texas. 1992 statistics is what you are
using.
Dr. Berenson. I honestly don't know.
Mr. Johnson of Texas. You don't know?
Dr. Berenson. I do not.
Mr. Johnson of Texas. What date are your statistics?
Dr. Berenson. I don't know the date of these statistics. I
am sorry, sir. But I have said----
Mr. Johnson of Texas. You don't know the statistics you are
basing your decisions on?
Dr. Berenson. I don't personally know the answer to that. I
am sure I can provide that answer for you.
But I have commented that we are--it may well be that the
criterion relating to proximity--I mean, it makes some sense
that to be part of a hospital one would be geographically
associated with the hospital. We are now finding examples where
that creates a problem, and we are actively looking at that.
Mr. Johnson of Texas. Well, I appreciate it. When are you
going to make a decision? Because you know if you get rural
hospitals, which have been deprived of HMO service, and they
need to go somewhere else to get it, they are obviously going
to be out of that Zip Code. And you know you need better----
Dr. Berenson. We are looking at that. At the same time, we
need to know that the clinic that is distant from the hospital
actually is integrated with that hospital to get the benefits
of the additional payment that occurs. There have been abuses
in this area before. I mean, they are a provider, whether they
should benefit from the level of compensation is really what
is----
Chairman Thomas. The gentleman from Texas is on a role.
Does he want to take his own time now or is this still out of
the gentleman from Louisiana's?
Mr. Johnson of Texas. I will return my time to him. I think
I have made the point. Thank you.
Chairman Thomas. Does the gentleman from Illinois wish to
inquire?
Mr. Crane. Please. Thank you, Mr. Chairman.
Dr. Berenson, Mr. George Renaudin, at the bottom of Page 6
in his testimony for the AAHP states that, ``The actual payment
from the government is $415 in Terrebone Parish, Louisiana, and
is $574 in Orleans Parish.'' A check of HCFA published by
Medicare Plus Choice rates for 2000, however, shows that the
rate for Terrebone Parish is $570, rather than the $415 figure,
and is $651 in Orleans Parish, in contrast to the $574 figure.
Can you explain this discrepancy in rates?
Dr. Berenson. Excuse me. What we publish in the rate book
is based on a beneficiary who has average demography. We adjust
the payment rates that go to the plan based on the age, sex and
institutional status of the beneficiary, so that somebody 70
years old would have a different payment than a beneficiary 85
years old. So our number is based on sort of the county
average. We are now going to factor in risk adjustment, but we
don't have to go there for this discussion.
I can only presume that the actual payment that this
particular Medicare Plus Choice organization is receiving is
because they have probably a younger population than the
average in that county, and therefore their actual payment is
lower. But the people who are younger presumably do have lower
medical care costs, and so that is how I would reconcile those
two numbers. I haven't had a chance to actually meet with the
plan to see if that is the explanation. But that is what we
believe is the likely explanation.
Mr. Crane. That kind of spread can be 30 percent, 40
percent. That is not unnatural.
Dr. Berenson. We have just seen this testimony and actually
have had a chance to briefly talk to our actuaries to see if
they could understand what the difference would be. The one for
Orleans is plausible to have that kind of spread. The one from
Terrebone County seems awfully large, and I don't think it is
easily explained. But we would be happy to sit down with the
plan and see if we can't come up with an explanation. That is a
very large spread to explain simply on gender and age
differences.
Mr. Crane. Very good. Thank you.
I yield back the balance of my time.
Chairman Thomas. Does the gentlewoman from Florida wish to
inquire?
Mrs. Thurman. Thank you, Mr. Chairman.
Just an inquiry to the chair. Are we going to have more
than one round or is this kind of our best shot?
Chairman Thomas. I believe the gentlewoman should figure it
her best shot.
[Laughter.]
Mrs. Thurman. Okay.
Chairman Thomas. If you are going to give me a choice, you
know the one I am going to take.
Mrs. Thurman. Well, you know, I just wanted to know if I
needed to bring my yellow flag out or not. But nonetheless, in
saying that, because, as you can imagine with this hearing, we
have----
Chairman Thomas. Let me say this is on the chair's time, so
don't keep her clock going right now.
Mrs. Thurman. Thank you. I think the yellow flag worked.
Chairman Thomas. Does that help a little bit? Keep going.
Mrs. Thurman. I thank you, Mr. Chairman.
Because, as you can imagine, this is such a big issue for
so many of our constituencies that we serve and also with the
providers. And as I am sure that has happened in all of our
offices, there are several questions that we would like to be
able to put on the record that we are not going to have time if
this is the only thing. So I would hope that we would be able
to submit questions.
Chairman Thomas. No question. I would tell the gentlewoman
from Florida this is the beginning of this process, not the end
of the process, and that I know Dr. Berenson----
Mrs. Thurman. And you will be with me until the bitter end
of the process.
Chairman Thomas. I will be here till the bitter end, as
will Dr. Berenson. And he would be pleased to respond, but he
may very well need to have written responses anyway. And there
is no problem whatsoever in submitting additional questions
because, frankly, we are going to be carrying this dialog along
through August during the break. It does not need to occur
right now. There is no window of supplying information that
would be closed if you don't get it in right now.
The primary focus would be, in my opinion, on getting the
provider group up here, so they can spread on the record. They
don't get nearly the opportunity to provide for the record
their own particular concerns. They have avenues available to
them, but not on the record. We will have an open dialog with
the administration on where and how we need to make
adjustments.
Mrs. Thurman. I thank the chairman because, as you know, I
have been very concerned about immunosuppressants. I have huge
issues with hospitals in my district.
Chairman Thomas. The gentlewoman's clock will begin.
Mrs. Thurman. Okay.--with issues dealing with my hospitals,
teaching hospitals, GME issues. Mr. Ramstad and I have a piece
of legislation on technology that we are very concerned about,
and streamlining a process. I mean, there are several things
that are very concerned about and would like to have a dialog
with you. And I do have lots of those questions.
But like many of my colleagues up here, the July 1st
deadline has come and gone, and we are now facing very angry
people in our communities, and in some cases to the extent
where our HMO Medicare Choice programs have now pulled out, and
leaving no coverage. And some of us have already seen some
meetings on this. I think we need some help here in how we go
back to these folks that are losing their coverage, and if you
saw the faces and the articles of people that ar 80-years-old,
that all of a sudden--I mean, here is a great picture. You
know, this woman is 80-years-old, and she is at the hearing of
the discussion of the Medicare HMO pull-out. They are trying to
ask us questions, and have chosen to use a couple of ideas.
One that I might ask you about is--and I know we changed
the law on this, but maybe you can give me some better reasons
to tell them why we did not force HMOs to stay in an area for a
period of time--once they go in, if they stayed in for 3 years
or whatever--why they think the differential cost. And I have
to tell you, the cost issue is not--or the reimbursement issue
is not as big as the issue as why one area gets more benefits,
less premium, and one area gets no benefits except for maybe
prescription drug and pays a premium. They do not understand
that, and quite frankly, I agree with them. I thought Medicare
was Medicare and everybody was supposed to have the same
benefit and that should be the premises on which we should work
from first. Why is it that you can have HMOs in one area of the
state, they pull out in another state? Why aren't they covering
a whole state, cutting their risk or covering their risk across
county lines? Because in this case and like in Hernando County,
they could go--I mean one said they actually were going to go
set up sets in Pasco County because Pasco County is not losing
their Choice program, but the one next door is, and the
differentiation in their ability for reimbursement is only
maybe $20. To the south of them, they get less money.
So there are all these questions that people are asking.
And just as importantly, and the biggest concern I have in
talking to some of the HMO providers, they have told me, ``It
does not matter what Congress does at this point. We probably
would never go back into those counties anyway.''
But I think we need to tell the whole story around this. I
mean, I think part of our problem is--and I think part of it is
the BBA problem, particularly in Florida. We have now got a
situation where BBA has cut into some of these hospitals. They
can no longer shift their costs, so their contracts with their
HMOs are not as good as they used to be, and they do not have
an ability to cost shift. I mean, help me, because on the 4th
of August, either I am going or you are going--I do not which--
about these 500 people that are going to be asking some very
tough questions, and what I could take back to them in offering
them some solutions.
Dr. Berenson. Well, you have certainly--I think virtually
everything you have said, I do not disagree with. I mean, the
cost shifting clearly has happened. In fact, there was a recent
report by Deloitte & Touche that documented that over--about 50
percent of large hospitals had terminated an HMO contract, and
we are certainly hearing that they are requesting higher
payment rates, partly as a result from decreased Medicare
margins, but the Medicare margins are still pretty healthy. So
there had been, in essence, some cross-subsidization going on.
This is a tough dilemma. I mean, the idea of keeping plans
in for two or 3 years sounds attractive, but I have actually
been dealing with some plans, who in the middle of a year,
actually wanted to terminate a contract because they were
beginning to hemorrhage financially. We would only do that in
extreme circumstances because we feel that the contract year is
a commitment, and that the plan should not be getting out
within that year.
I actually think--and this is not the time for the full
discussion--we really need a fundamental restructuring of how
these plans get paid. The President has one approach which
would pay the plans more in relationship to their own costs.
The plans would submit a bid for providing the services, rather
than through this administrative formula, which for a number of
reasons has problems. So I think that is one approach,
certainly providing some additional support in the form of a
subsidized prescription drug benefit is another approach. There
is actually a provision in the BBA that permits Governors of
states to either have a statewide service area or define a
metropolitan service area and a non-metropolitan service area
as a way to try prevent some of the segmenting of service areas
that occurs, but plans have difficulty serving that whole area,
given the differences in payment.
So I do not have a simple solution within the current
construct of how these payments occur, and I do think we need
to be looking at perhaps some fundamental change in how the
plans are paid, but I do not know that that helps for this
August.
The other thing I would say, that if the Congress is able
to pass legislation this September with a prescription drug
benefit and plans would wish to come back in, or existing plans
would want to change their benefit packages, we are now doing
contingency planning at HCFA to be able to handle the requests
that would be coming to us to make that available. So we will
be there if Congress does act this fall.
Chairman Thomas. Subcommittee members, we have a non-
Subcommittee member with us, and he has a question that he
would like to ask, and obviously, the rules are that the
Subcommittee goes first. If it is okay for the other Members of
the Subcommittee, we could call on the Chairman of the Social
Security Subcommittee, because I know he has a question. Is
that all right with the Members of the Subcommittee? And our
friend, the gentleman from Maryland, who used to be on this
Subcommittee--because of the rules, he is not, but you are a
regular, so we are going to fold you in with the other members.
Does the gentleman from Florida wish to inquire?
Mr. Shaw. Yes, very briefly, and there is two areas that I
would like to bring to the attention of the Committee and to
the attention of the witness. And I very much appreciate your
recognizing me and allowing me to sit with you these few
minutes.
I would like to have the Committee and the administration
to consider my bills, which is H.R. 4571, which is a Pap Test
to Save Women's Lives, a bill that I have introduced with Mrs.
Thurman of this Subcommittee; and another bill that provides
for digital testing for breast cancer.
As you recall, Mr. Chairman, I offered and withdrew my
bill, The Pap Test to Save Lives Act, as an amendment to the
Medicare Prescription 2000 Act. I introduced it with Mrs.
Thurman. At that time, Mr.Chairman, you suggested it would be
more appropriate to be discussed in the context of the Balanced
Budget Refinement Act.
This act would provide for annual Pap tests for women under
the Medicare. Under current law, the women are only allowed to
have this done every 3 years as a payable expense unless they
are determined to be high risk. I think that most of your
doctors will recommend that women over a certain age have this
done every year. The cost, I feel, is very minimal next to the
dangers that are presented by not having it, and I would also
point out that I believe that the prostate exams for men are
permissible every year, so I find that there is a certain
inequity there that I think that we ought to be addressing.
I would hope also that we would make similar progress in
detecting and curing breast cancer. The new bill that I am
announcing today would be a positive step toward this goal.
While mammographies are invaluable for screening for signs of
breast cancer, the x-ray based technology that we are using
today is 20 years or older. So when I had an opportunity to see
a demonstration of new digital mammography equipment, which has
been 11 years in the making, I immediately set out to work to
make this technology available to women elsewhere. This bill
would make sure that Medicare beneficiaries get these digital
tests by making the necessary adjustment to the Medicare
reimbursement policies.
I will be sharing this information with you, Mr. Chairman,
and with Members of the Subcommittee over the coming days in an
effort to gain support for this. I have a keen personal
interest in this. My wife lost both her sister and her mother
to cancer, and both of them were victims of breast cancer. It
seems today that we should, through our Medicare beneficiaries,
make the very latest in technology available to them, so that
we are doing everything we can to screen for cancer, and
hopefully at an early date, that we will have some of the--we
will be bragging about some of the results that we have from
this new digital detection equipment that the Pap test has
certainly shown in saving lives of women.
And, doctor, if you would like to comment on that, or if
you prefer to do it at a later date, put this out to you.
Dr. Berenson. We will certainly look at that. I know the
President's proposal for modernizing Medicare identifies a
number of prevention screening tests that should now be done
without any out-of-pocket expenses. I don't believe that
proposal recommended changing the schedule of every 3 years,
and we certainly want to look at that. I would also want to
raise the issue of the thin prep that I know that has some
interest here, that we are actively looking about being able to
achieve administratively a proper reimbursement for that test
within the current way we do gap filling, and then establish a
national rate. And I have met with the company to try to make
that particular Pap smear technology available at an
appropriate cost.
So we certainly share your interest, and look forward to
seeing the details of your legislation.
Mr. Shaw. Thank you, doctor. And thank you, Mr. Chairman.
Chairman Thomas. Thank you, gentlemen. And with the passage
of the bipartisan Thomas-Stark Coverage and Appeals Bill, any
of these preventive measures can move rapidly to a national
status.
Does the gentleman from Texas wish to continue his zip code
inquiry?
Mr. Johnson of Texas. Well, thank you, Mr. Chairman. I
think we have about exhausted zip codes. We figure people
cannot define those.
But let me switch to home health care, if I might, and ask
you. In your testimony you indicated that there are some
problems with access to home health service. You are forcing
the closure of branch offices more than 70 miles from a parent
agency, and in Texas, we have got 47 counties which have no
home health care, and the branch offices were a key component
of getting those services to Texans in those counties. But HCFA
has come out with a rule that stipulates it cannot be more than
70 miles from the parent facility.
I might tell you, Texas has got--it is more than 1,000
across from one end to the other, and a lot of those little
counties our in West Texas do not have hospital facilities or
home health care facilities. So could you tell me, first of
all, does HCFA recognize branch facilities as an efficient and
effective way of getting seniors the care they need?
Dr. Berenson. Again, it is similar to the other situation.
If in fact the branch office is truly part of the parent and
the appropriate supervision and controls, and so forth, are
there, then it would be appropriate. I believe in this area
there were a number of examples where the branch office, the
so-called branch office was able to achieve a higher
reimbursement rate, but really was not functioning as part of
the base office, and it was really not appropriate, and so that
was the basis for setting up a criterion of 70 miles.
Mr. Johnson of Texas. Well, how does HCFA determine whether
it is an appropriate branch or not? Have you been out to West
Texas and visited any of the docs out there and talk to them
personally?
Dr. Berenson. Actually it was in East Texas, but not West
Texas. I visited hospitals in East Texas last year, but I have
not been out to West Texas.
Mr. Johnson of Texas. How do you determine whether a branch
is appropriate or not from HCFA, sitting there in your office?
Dr. Berenson. Well, that is why we come up with criteria
that may sound arbitrary, but that is why we have them, so that
is why 70 miles was selected, because we do not have the
ability to be----
Mr. Johnson of Texas. Well, who came up with 70 miles?
Dr. Berenson [continuing]. In the field and then make that
judgment on a case-by-case basis.
Mr. Johnson of Texas. Where did you get 70 miles from if
you do not have data, you do not know where the data comes
from?
Dr. Berenson. Again, on that particular issue, I cannot
tell you the precise basis for why 70 miles and not 50 miles or
90 miles, but I can certainly provide that information back to
you, and look into that issue.
[The following was subsequently received:]
The State Survey Agencies and the HCFA Regional Offices review the
Home Health Agency's (HHA) request for a branch office, consider all
the national guidelines and communicate their final decision in writing
to the HHA. Specifically, our Regional Offices examine how the branch
office shares HHA administration, supervision, and services with the
patent HHA; how the patent HHA supervises the branch staff and ability
to provide quality care for patients; past compliance history of the
parent and its current ability to meet the conditions of participation;
any relevant State issues and recommendations; and mileage and travel
times from the branch to the parent.
In the following HCFA policy and guidelines on approving HHA
branches, our Regional Offices do have the flexibility now to approve a
branch that is capable of providing quality care, particularly when
access to home health care may be an issue, especially in rural areas.
And, while we consider all of the factors indicated above, each alone
would not be a single issue in determining the appropriateness of a
branch office, and each factor might vary from one area to the next.
Further, we do believe that we allow for modern technological
communication advances to be used between the parent and the branch,
yet technology is not a substitute for the physical presence of a
supervisor, overseeing the provision of quality care to all
beneficiaries being served by a branch.
We have continued to meet and work with industry groups to ensure
that flexibility exists in our Regional Offices' determination of home
health branches. When a remote site cannot qualify as a branch, the
parent HHA must set-up a submit rather than a branch office. A submit
is an entity that must have its own administrative and supervisory
capacity, meeting the conditions of participation on its own, ensuring
quality of care. HCFA's policy on branch offices is consistent with
regulatory and statutory requirements and serves to promote quality
patient care.
Mr. Johnson of Texas. I wish you would. Let me ask you
another question concerning ambulance services. What is HCFA's
best estimate on the date which a proposed rule on Medicare
ambulance fee schedule will be issued?
Dr. Berenson. As you know, I am sure, the ambulance
proposal was the result of negotiated rulemaking with the
various parties. We are basically now taking the results of
that rulemaking process, and it is in final clearance. We
expect to have the proposed rule out within days, because it
needs to be implemented on January 1st, and so the timing
accomplishes that. And so----
Mr. Johnson of Texas. So there is supposed to be a 60-day
period for comment, and you anticipate getting the rule done by
January the 1st anyway?
Dr. Berenson. We do, because to a large extent we have
benefited from the fact that this was negotiated rulemaking,
most of the parties who have a stake in the result have already
participated and have agreed to the rule. There have been some
issues raised, rural again has come up. There have been a
couple of states which have come in because of particular forms
of ambulance services that they have, but we actually think
because most of the stakeholders were already part of the
process, the 60-day comment period, our review of comments,
will permit us to make that January 1 timetable.
Mr. Johnson of Texas. Okay. Your new date was put at August
the 31st. It was supposed to be out in May or June. So you
anticipate making that August 31st date
Dr. Berenson. It will be out in August.
Mr. Johnson of Texas. Okay. Yield back the balance.
Chairman Thomas. Thank the gentleman. Does the gentleman
from Minnesota wish to inquire?
Mr. Ramstad. Thank you, Mr. Chairman.
Dr. Berenson, as you know, the BBRA included provisions to
establish a hospital outpatient pass-through payment system for
new medical devices, new medical technologies that will help
gather important data on these devices to insure adequate
payment levels for them.
While the initial list, I think everyone concurs, fell
short of what was designed, HCFA has done a pretty good job of
refining and expanding that list, and I thank you,
Administrator Min DeParle and many others who worked on the
list. I also appreciate your willingness to work with industry,
to work with my staff and me on this critical issue, as well as
with others on the House Medical Technology Caucus. I have been
told that an additional list of items of inclusion in the pass-
through was to be released today, in fact, this morning. I was
wondering if that list was in fact released, and I would
appreciate an update on the status of the list and its
contents.
Dr. Berenson. My understanding is it will be released
today. I do not know if it has yet. It will be today. I do not
think it has happened. And this would be the list that would be
included for payment effective August 1st. It essentially
includes approximately 596 items, if I am reading correctly. We
are also reviewing others that missed that deadline and are
being reviewed right now for--I take it back--it was 443 that
will be in the initial list, and we are reviewing a lot more
for inclusion in October 1st. I can provide you the specific
information about it, but essentially we are putting up today
the list that will be effective for August 1st. We will, in the
very near future, essentially over a period of the next few
days into a week or so, be reviewing the next list. We approved
most but not all. In some cases the devices are not eligible
because they are pre-1997. In some cases they do not have the
appropriate FDA or other approvals, but for the most part, we
have found acceptable the requests. And I guess the final point
to make is--we are committed to doing this on a quarterly
basis. We are in the process of setting up a routine process,
so all the manufacturers understand it, know what the
timetables and deadlines are so that we can do our work.
Mr. Ramstad. So this will be available after the hearing
today?
Dr. Berenson. Yes, I can provide that for you.
[The information was subsequently received and is being
retained in the Committee files.]
Mr. Ramstad. Okay. I appreciate that. I know there are a
lot of other people in this room and elsewhere awaiting
anxiously this list. And I do appreciate the collaborative
effort. I think that is so important, to work with industry
instead of in an adversarial way. And I applaud you and your
staff and the administrator for that.
Also, I would like to say, Dr. Berenson, as co-chair of the
House Medical Technology Caucus, that I appreciate HCFA's
efforts to create what is really a more transparent and
reasonable coverage decisionmaking process for Medicare.
Certainly there is room for improvement, as everybody
recognizes, but progress has been made. I must say that on June
29th I sent Administrator Min DeParle, after meeting with her
in my office, a letter about a pending coverage decision that
is expected to be made soon, and I regret having to address
this issue again, because I thought significant reforms had
been made, but I am told that there are major problems in the
process, especially regarding the initial operations of the new
MCAC, the Medicare Coverage Advisory Committee, which recently
reviewed two existing urinary incontinence treatments,
biofeedback and pelvic floor electrical stimulation. And I know
there are concerns that have been voiced about the appropriate
use of the advisory panels and the consistency of evidentiary
standards throughout the coverage process. It has also come to
my attention from a number of sources that during the panel
deliberations, both panel members and HCFA staff made troubling
comments about the process itself, and I was wondering if you
would care to comment?
Dr. Berenson. I actually would probably not. Jeff Kang is
the head of the Office of Clinical Standards and Quality and
has direct jurisdiction over that, and I really do not, and so
I think that it would be inappropriate for me to comment at
this point, but----
Mr. Johnson of Texas. Would you pass on, please, my
concerns to Dr. Kang, and if he would call or respond, I would
appreciate that.
Dr. Berenson. Absolutely.
Mr. Johnson of Texas. And I see that my time is up. Thank
you again, Mr. Chairman.
Dr. Berenson. And I would be happy to arrange a meeting so
that--with Dr. Kang and appropriate staff with you.
Mr. Johnson of Texas. That would be very appropriate and
much appreciated. Well, let's do that, Dr. Berenson. Thank you
again. Mr. Chairman.
Chairman Thomas. Thank you. Does the gentlewoman from
Connecticut with to inquire?
Mrs. Johnson of Connecticut. Thank you, Mr. Chairman.
Welcome, Dr. Berenson. I am going to state my question, then I
want to give some background, but I thought if I just say the
question first, it will be easier. I am going to ask you why is
the administration choosing a full market basket increase
rather than MedPAC's recommendation, which is market basket
plus. Also, what do you think should happen in the out years?
This is an extremely important question to me. All the
hospitals in my district have negative margins. All but two
hospitals in Connecticut have negative margins. They are
eroding their endowments, and we are on the verge of creating
big access problems. If a group of these slide into bankruptcy
and close or limit their services in a state like Connecticut,
which in the icy winters access is a real issue, we will
materially alter the access of senior citizens to Medicare
benefits.
In your testimony you attribute the increasing difficulties
faced by hospitals to reductions in private payments, and the
date you are using is 1998. I would agree in '98 that one of
the reason hospitals were having trouble was the sharp
reduction of payments by managed care payers and the private
market in general. But this is the year 2000, and it is not
just the private sector. It is a catastrophic failure of
Medicaid to keep abreast. It is an increase in the number of
uninsured and uncompensated payments, and it is the fact that
Medicare payments themselves, where they are adequate, are
barely so, and in some cases they are inadequate. And in your
testimony you mentioned that rural hospitals are having a
problem because they are more Medicare-dependent, which
indicates that Medicare is part of the problem, even according
to the 1998 data. What I am telling you is that the year 2000
data is far worse, and because we do not have it clearly under
our old system, we really cannot avoid it. In other words, if
you look at Connecticut, if you look at rural hospitals, if you
look at teaching hospitals, if you look at hospitals with
uncompensated tier, I believe many of our hospitals, enough of
our hospitals, are in the same state that nursing homes were in
2 years ago, that you are going to see the same level of
bankruptcies out there that we have seen in the nursing home
industry in the last year, if we are not more aggressive in
addressing their problems. So when MedPAC says market basket
plus 0.6 to 1.1, I think that is important.
Let me add one other fact here. My own local hospital used
to see drug costs increase at about 3 percent--this was the
first half of the 'nineties. Then I have forgotten which year
it was, about 4 years ago, drug prices went up 7 percent. Last
year the drug costs for that hospital went up 40 percent. You
know, we are not taking into account a lot of the costs that
these institutions are facing, and I think we have to be far
more aggressive this year. So I want to know why you do not
support MedPAC's recommendation for next year, and whether you
think that we should continue to give full market basket the
whole 5 years?
Dr. Berenson. I guess my----
Mrs. Johnson of Connecticut. And I have two other
questions, so I do want to move through----
Dr. Berenson. I guess very quickly, in addition to
recommending market basket, the administration has also
recommended freezing the indirect medical education for the
year, repealing the DSH reduction, freezing the DSH allotments
in Medicaid, and it adds up to $5 billion over 5 years, and
there is an additional amount that we want to work with the
Congress and with this Committee to identify. At this point we
have looked at least at the aggregate numbers from '98 that
show that inpatient margins are still at 14 percent and that
total margins are still at 6-1/2.
Mrs. Johnson of Connecticut. And what year data is that
based on, that 14 percent?
Dr. Berenson. That is data that MedPAC published recently,
that we have been a part of providing some support for, but it
was basically a MedPAC report.
Mrs. Johnson of Connecticut. I want to hear from you later
after this hearing so we can take that apart.
I know of no hospital that has a 14 percent margin on even
Medicare, although Medicare fee-for-service is still the best
payor. But you know, in Connecticut, where you had really big
managed care participation recently, that is a problem.
Dr. Berenson. Yes. Well, and again, that same report I was
referring to earlier is suggesting that hospitals are
renegotiating or changing their contracts with managed care. I
am not sure we necessarily want to assume what the condition is
going to be out 5 years. We are certainly committed for this
year. Part of the data does show there are more hospitals than
have been in a negative position, so there seems to be some
distribution occurring, and it may well be that Connecticut is
particularly hard hit, but I will be happy to share that
information with you, and again, we want to work with you on
that additional amount that has not been specifically allocated
at this time.
Mrs. Johnson of Connecticut. Okay. And I would just like to
mention that we need to look also at the Medicaid DSH payment
because that is not enough. If Connecticut is any indication,
they are paying 20 cents on the dollar into Medicaid because
their money is going into nursing home care. So I think we have
to look at the hospital component of Medicaid and how adequate
that is in the states. We may even need to change the law so
they have to be more realistic.
Chairman Thomas. What we are going to try to do though, is
stay within our jurisdictional boundaries. The Health
Subcommittee of Commerce has had its hearing, and I was very
pleased with their staying within their boundaries, and I want
to return the courtesy. Now it is time to--we have to look at
it as a whole, we do have split jurisdiction in the House,
which just means we have to double our efforts to coordinate.
Thank the gentle lady.
Does the gentleman from Michigan wish to inquire?
Mr. Camp. Thank you, Mr. Chairman.
Dr. Berenson, less than 6 months ago the administration
proposed $70 billion in cuts over 10 years to the Medicare
Program. That was 18.2 billion in fiscal year 2001 alone. Yet
just a few days before our vote in the House on our Medicare
Modernization and Prescription Drug Legislation, the
administration did 180-degree reversal, suggesting that
increasing Medicare payments by about $21 billion over 5 years
would be appropriate. Do you think Congress made the right
decision in rejecting the administration's initial suggestion
to reduce Medicare? And what caused such a sudden change in
your thinking?
Dr. Berenson. I think the recommendation was done in the
context of the mid-session budget review. I think it was, to
some extent, the recognition of a general budget surplus, the
increasing information, such as what Congresswoman Johnson has
just reported, that the data that we had been basing our
judgments on was perhaps not as timely as it might be, and even
though we have been trying to understand specific situations or
trying to understand whether beneficiaries are having
difficulty getting access to quality care, I guess the judgment
was made that in the absence of contemporary data, that the
stories and arguments that we have been hearing from many
providers were becoming compelling, and we wanted to take in a
sense preventive action at this time. We do not think,
actually, at this point beneficiaries do not have access to the
important services they need, but we were beginning to hear
from, for example, hospital discharge planners, that they were
beginning to have difficulty placing patients in nursing home
or in home health agencies. They were able to do it, but they
were beginning to experience difficulty doing it. So I think it
was a combination of factors that resulted in the proposal to
head off what could be problems in the future.
Mr. Camp. Doctor, you also state in your testimony that the
administration will consider improving equity for rural
hospitals in the Medicare disproportionate share formula. As I
recall in 1997, BBA, the Secretary was directed to submit a
report to Congress by August 5th, 1998 on the new payment
formula for the disproportionate share. Do you know if that
report has been submitted yet?
Dr. Berenson. We have discussed that. I has not been. It is
in, I believe, its final clearance at this point. It has been
up a couple of times and back, and I believe you will see that
report in time for your next deliberations.
Mr. Camp. Will the report address the inequities in the
formula?
Dr. Berenson. The report will address the different
thresholds that urban and rural hospitals have to meet to
qualify. What we do not have at this point is an ability to
identify those who really do not have any source of insurance
at all, which is really what MedPAC has recommended as a basis
for an overhaul of the DSH formula. In that area I promised the
Chairman that we would get back to him with our current ability
to get a data collection system going, but it will certainly
address the issue of the current distribution amongst urban,
rural and types of hospitals.
Mr. Camp. All right, thank you. Thank you, Mr. Chairman.
Chairman Thomas. Does the gentleman from Pennsylvania wish
to inquire?
Mr. English. Thank you, Mr. Chairman, I would.
Dr. Berenson, in January HCFA published an interim final
rule expanding its definition of days countable and the DSH
formula effective on January 20th, but permitting only a narrow
group of states to qualify. Hospitals in our bordering state,
New York, and seven other states would be eligible to claim
waiver days, and HCFA had--and that HCFA had previously said we
are not allowable, as I understand it. Pennsylvania's general
assistance recipients are part of its Medicaid state plan, and
therefore, are not statutorily permissible--are statutorily
permissible under any interpretation. However, Pennsylvania was
not included as a qualifying state. I understand you may not be
familiar with this issue, but I sent a letter to Administrator
DeParle on May 25th, asking for clarification of HCFA's rule.
Can you give me any indication when I might receive a response
to that letter?
Dr. Berenson. We will make sure you have it in the next
couple of days. It really----
Mr. English. Prior to the recess?
Dr. Berenson. I think we can do that. We will certainly do
that prior to the recess. And I really do think the
interpretation does go to general assistance days being state
days, and waiver days having a Federal Medicaid component, but
we will try to clarify that and provide the basis for that
judgment in that letter, and I will make sure you get it this
week.
[The information follows:]
While we initially determined that states under a Medicaid
expansion waiver could not include expansion waiver days as part of the
Medicare disproportionate share adjustment calculation, we have since
consulted extensively with Medicaid staff and have determined that
section 1115 expansion waiver says are used by patients whose care is
considered to be an approved expenditure under Medicaid (Title XIX).
Therefore, patient days under a Section 115 waiver are considered to be
Title XIX days by Medicaid. It contrast, In contrast, general
assistance days continue to be considered days for patients covered
under a state-only or county-only general assistance program, whether
or not any payment is available for health care services under the
program. These patients are not Medicaid-eligible under the state plan.
Therefore, Pennsylvania, and other states that have erroneously
included these days in the Medicare disproportionate share adjustment
calculation in the past, will be precluded from including such days in
the future.
Mr. English. I am not sure I understand, but I certainly
will await your response. Doctor, recent studies by George
Washington University Project Hope, MedPAC and the GAO, all
have found that sicker, more costly Medicare beneficiaries are
having trouble gaining access to the home health benefit. Do
you have any data that contradicts the findings in those
studies?
Dr. Berenson. Well, the Inspector General, in particular,
has done a couple of surveys of discharge planners from
hospitals in terms of their ability to locate appropriate
sources of care for beneficiaries, and is beginning to find
some difficulty placing the high acuity of the sicker home
health patients, and so I guess what we are beginning to find
is information that is consistent with what you have described,
and it is one reason that we are recommending that we would not
ask for that 15-percent reduction that is supposed to take
place for home health agencies this year.
We believe, very strongly, that the new prospective payment
system that will go into effect on October 1st, very much will
improve the situation, replacing the interim payment system,
reward the home health agencies more appropriately, and it does
have a case mix adjustment component. It does have an outliner
component in that proposal. So we think the PPS, as well as not
taking that 15-percent reduction for the year, should, we are
hopeful, address the problem that you have raised.
Mr. English. Do you see any public policy, or for that
matter, clinical argument for an additional 15 percent across
the board cut in the home health benefit?
Dr. Berenson. For this year we are recommending that we
would not take that cut, and I think we need to see--we need to
hold judgment about the future. It depends a lot upon the
success of the prospective payment system and whether it is
able to adequately compensate agencies for taking care of
higher acuity patients who they are treating at home.
Mr. English. Can I be clear then, are you advocating simply
delaying the 15 percent cut, or are you recommending that we
act to eliminate it at this point?
Dr. Berenson. We are recommending a 1-year deferral, so we
would not eliminate it at this time.
Mr. English. So you would retain it as part of the budget
calculation and as part of our future policy at this stage?
Dr. Berenson. At this stage we would.
Mr. English. Thank you, Mr. Chairman.
Chairman Thomas. Thank you. Does my friend from Maryland
wish to inquire?
Mr. Cardin. Thank you, Mr. Chairman. I appreciate the
courtesy of being permitted to ask some questions.
Dr. Berenson, thank you very much for your testimony. It is
interesting. We try to balance cost issues with quality issues,
and I am going to ask you to get back to me on a matter that
was brought to my attention on breast cancer, that deals with
different procedures that are available, one that would permit
the stereotactic breast biopsy versus the surgical biopsy, and
that the methodology used to determine the reimbursement for
the less intrusive treatment, stereotactic breast biopsy,
appears to be inadequate to allow those procedures to go
forward, which would be counter-intuitive to saving costs and
being more convenient for the patient. And I am going to ask if
you would take a look at that and get back to us by September,
so that it could be useful in our Committee's deliberation.
Dr. Berenson. That one clearly does fall under my
jurisdiction. I do not know that issue right now, but I will,
and will get back to you.
Mr. Cardin. I appreciate that. And let me just also join
many of my colleagues who have expressed concern about the
health of the different communities, medical communities. Since
the passage of the BBA Act in 1997, we have seen in the nursing
industry, the collapse of stockholder values in nursing homes,
and many of the nursing homes going into bankruptcy, and our
hospitals, as my colleagues have pointed out, the margins are
not acceptable for any long-term viability of our hospital
community. When you take a look at the home health cares, so
many of them that have closed in our community and around the
nation, take a look at our academic centers, and the list goes
on and on and on.
And I appreciate the Chairman's comment that we have passed
the Refinement Act, and we haven't fully seen the full
implementation of that Refinement Act. But I must tell you,
looking at is as a snapshot today, there is reason for all of
us to concerned, and I appreciate the fact that the
administration has put forward a proposal to try to deal with
this, and I hope that we are able to come forward with
legislation this year.
Let me, in the time that I have, talk a little bit about
the HMO issue, because I think it is--there are a couple
philosophical issues here. And you have mentioned the
geographical disparities with the formula that we have adopted,
and perhaps we are going to have to change that philosophy or
formula for reimbursing Medicare Plus Choice plans, but let me
talk for a moment about what I think has been a philosophy
since the beginning of Medicare Plus Choice, and that is that
we reimburse HMOs of what we think the cost is for basic health
care under Medicare under covered service, and we expect that
they are going to perform--or reimburse more than just the
covered services, and that they can do that by reigning in
costs and saving money, which is no longer the case. And it
seems to me that as we are looking at some type of refinement
to that payment structure, the point that Mrs. Thurman pointed
out, without putting something into the underlying wall that
protects the system and the beneficiaries for the services that
we expect HMOs to provide, we might very well be paying them a
bonus, and find out that they are just going to continue to
erode the extra services such as prescription medicines or the
deductibles or co-pays or the other preventive health care and
some of the other issues that are included in HMO coverage.
They might just eliminate that, and what we thought we were
doing in passing a bonus in fact has not become reality. So I
do think if we are going to be looking at additional bonuses,
we should be looking at additional responsibilities of Medicare
Plus Choice plans, to either cover these services or to stay in
the market for a longer period of time. And I would appreciate
your comments on that.
Dr. Berenson. Yes. I actually think it is worth saying, one
point about the fact that--we tend to talk about the program as
sort of a monolithic program, what the plans are doing. In
fact, the experience of this year demonstrates that different
companies have very different attitudes, and business sort of
decisions in relationship to the Medicare Program. Of the
900,000 plus beneficiaries who lost plans, nearly half of them
were withdrawals from two companies, Aetna and Cigna, both of
whom withdrew from--each of them, about 69 percent of their
beneficiaries were affected, and in one case there was a court
order that kept them in another area. Contrast that with
Pacificare, which is the largest Medicare Plus Choice
contractor, which serves nearly a million beneficiaries. About
2 percent of their beneficiaries were affected by non-renewals.
And Kaiser Permanente, which serves almost 800,000
beneficiaries, 0.2 percent of their beneficiaries were affected
by non-renewals.
So what we have are very different business decisions. We
have this tendency, again, to talk about what the HMOs are
doing or what the payment rates are. There is a lot of
different behavior. And clearly, one of the unfortunate
realities is that HMOs, as opposed to hospitals or nursing
homes, do not have bricks and mortar; they are not in the
community. They can easily withdraw, and if they are losing
money, some of them do so. Others seem to have much more of a
commitment and seem to have been able to figure out how to make
a decent business out of the Medicare business, and so we need
to understand a little more why these companies have these
different philosophies.
Mr. Cardin. But if I understand you correctly, that if
Congress passes a further refinement, you are prepared
administratively to act on reinstatements so that effective
January the 1st it is possible, if the legislation is framed
correctly and there is HMO interest, that we could have some of
these HMOs back in the market. At least you are prepared
administratively to accommodate----
Dr. Berenson. Clearly, we are talking about how to get the
information to the beneficiaries. The handbooks will be
outdated. We will figure out how to get them the appropriate
information. We will short-circuit and do what we need to to
review the ACRs. We are doing that kind of planning. We would
want plans--if there was substantial action, plans that had
withdrawn, we would have a window to let them back in, as well
as plans that were already in should have the same opportunity.
We would actually hope that the legislation itself would sort
of provide the parameters of that, but we are working
administratively to be able to do that if there is action this
fall.
Mr. Cardin. Thank you, Mr. Chairman.
Chairman Thomas. The Chair just wants to caution that
dialog a little bit. We did include provisions in the Balanced
Budget Refinement Act for those plans that pulled out in terms
of the times, the penalties and the rest. I would just tell you
the Chair is going to be a little reluctant to create a ``come
on back'' when plans left for business reasons if there were
multiple plans in the area. Clearly, where beneficiaries do not
have choice, where they did have choice, we may need to devise
a set of rules which at least creates a hierarchy of who gets
attracted back and under what circumstances. Ny goal is not to
roll back the calendar and pretend that January 1 did not
happen for some plans who make decisions based upon their
refusal to change their plan to meet the needs of the
beneficiaries. I just want that on the record.
Dr. Berenson. I think that is a very good point. Clearly,
that is what I wanted to emphasize, is the plans who stayed
should not be in any way disadvantaged because some plans left
and are afforded an opportunity to come back, and the point
about maybe it should not be across the board is a good one, so
I appreciate that.
Mr. Cardin. And I basically asked the question, Mr.
Chairman, for that same reason. I am concerned about those
areas where there is no options and no competition today.
Chairman Thomas. However, where clearly it may be a problem
with the administration of the hokey AAPC with numbers that are
not realistic or the failure of HCFA to meet a time line which
is appropriate, we will deal with those issues as well since we
have in the past repeatedly.
Mrs. Thurman. Mr. Chairman?
Chairman Thomas. The gentlewoman from----
Mrs. Thurman. Just to follow up on that, let me ask this
question then. With that 5 percent buy-back into areas that
were under served, have we had any takers on that?
Dr. Berenson. I do not believe--no, not so far.
Mrs. Thurman. Thank you.
Chairman Thomas. The gentlewoman from Connecticut, I think
wants to be----
Mrs. Johnson of Connecticut. On the preceding discussion, I
would just be concerned that one of the reasons one could stay
in the market was because the other two did leave, so that they
gave them the option and could increase their premium base more
rapidly.
I just wanted to, before you left, make a statement, since
there really is not any questioning further. But we did pass a
requirement that the GAO conduct a study that looks at the
practice expenses involved in the delivery of cancer treatment
in the community-based centers, and I know you are well up on
this problem, but 90 percent of cancer care takes place in
outpatient settings, and I would hope that you would not make
any change in the price of drugs to oncologists and that
reimbursement structure until this report is concluded, because
from it we think we will be able to do a more adequate and
precise job, actually, on the reimbursement issues that lie
with changing the reimbursement for the price, as opposed to
the administration of the cancer drug.
Dr. Berenson. I appreciate that. I have personally met with
the Society of Clinical Oncology and have understood how we are
reimbursing fairly generously for the prescription drugs, but
probably we need to improve the way we are reimbursing for
administration. And we have started looking at that, and we
will work with the GAO for sure to see what they come up with.
Mrs. Johnson of Connecticut. Thanks. I do have a couple of
wonderful sites you could visit and would invite you back up to
Connecticut to visit them.
[Laughter.]
Dr. Berenson. Okay.
Mrs. Johnson of Connecticut. Thank you.
Dr. Berenson. I would be happy to.
Chairman Thomas. The gentlewoman from Florida has one
additional question.
Mrs. Thurman. Dr. Berenson, have you at HCFA looked at all,
since we are talking about prescription drugs, of doing
reimbursement for Hospice in some of the prescription drug
areas, as well? They are really complaining about the cost of
drugs now and their ability to be effective?
Dr. Berenson. I will have to take that back and get back to
you.
[The information follows:]
We currently are looking at Medicare reimbursement levels for for
hospice-provided drugs, which are covered as a portion of the per diem
rate paid to hospice providers. The Balanced Budget Act of 1997
stipulated that hospices submit cost data to us so we can evaluate the
adequacy of current levels of Medicare hospice reimbursement. We are
now collecting and reviewing this cost data, and will have a better
sense of whether payments to hospice are adequate later this year.
Chairman Thomas. Thank you very much. Just let me say that
your comments to the gentleman from Pennsylvania, I would
rather buy than rent. For the home health care 15 percent, we
invested $2.5 billion to buy 12 months, and the administration
is now advocating--excuse me, $1.5 billion for 12 months--and
the administration is indicating they want to buy another 12
months for a billion dollars, and that is $2.5 billion over 2
years, to postpone a decision.
I understand no-fault in the area of insurance. But it
seems to me that partly, if you are so high on your October 1
Prospective Payment System, that we might examine this 15
percent. Because it seems to me the administration's position
is hedging so that they have the ability to use that as a fall-
back or a no-fault arrangement. And I would be very concerned
if we continued to invest money to delay a decision because
there was not a high enough confidence level in the product
that we were putting out. If there were other reasons, I would
be interested, but right now I think that is the primary
reason. You don't need to respond.
In the BBRA, we thought we were creating a relatively clean
short-term adjustment, which was a straight percentage
adjustment on the RUGs, to modify the acuity within categories
that we thought did not provide appropriate compensation. Those
what we thought were straight arithmetical computer-adjusting
decisions were supposed to go into effect April 1. They did
not. You indicated in your opening statement that money is
being received now. Do we know that for a fact? Because I am
getting some comments still from plans that although you may
have it in the pipeline, it hasn't started coming out the other
end yet. Do we have any confirmation that people have actually
received this money?
Dr. Berenson. I can't tell you right now. Clearly, we
didn't make April. June 5th is when--again, because of the
backup from Y2K, we could not do it in April, and my
understanding was that the payments were to begin on July 1st,
and I have not heard that we have had problems.
Chairman Thomas. My only concern is, as we plan here
talking about making additional responses, especially with
perhaps a bit more forward funding than in the previous piece
of legislation, I have some concern that something as an
arithmetical adjustment on an increased percentage, where the
Health Care Finance Administration couldn't make the date, and
that notwithstanding the argument that it has already been
done, I am still not hearing from the field that it is there.
If, in fact, we arrive at statutory dates for the
implementation of programs, the model I would hope that we
think about emulating are these envious presidential
announcements of administrative initiatives from the Rose
Garden. Because never once have I heard HCFA say they can't
afford it, we need more money for the administration; number
two, have I ever heard HCFA say to the President, we can't make
that date.
Somehow, every time there is an administrative request,
HCFA is able to respond, and I look forward to the day that the
same response and timeframe would be available for the
statutorily agreed-upon changes.
Dr. Berenson. Could I just add one thing, which is, again,
I am not aware that we are not making the claims. But the plan
is to provide the add-on for services back to April 1, even
though we did miss the April 1 date. So----
Chairman Thomas. So when they get it, they will get it.
Dr. Berenson. Yes.
Chairman Thomas. I appreciate that.
I thank you very much. And, again, thank you for the
administration's willingness, in an area where clearly it is
the beneficiaries that are ill-served if we don't move
solutions in a timely frame.
Thank you very much.
Dr. Berenson. Thank you. Thank you very much.
[Questions submitted by Mrs. Thurman, and Dr. Berenson's
responses, follow:]
Q1. Please update me on the status of the rule regarding
Medicare reimbursement for psychologists under GME and when we
can expect it to be published.
A1. We are actively proceeding with a proposed rule that
addresses Medicare payment for training clinical psychology
students. The document is currently going through the clearance
process. As you know, the complete clearance process for any
regulation requires time. However, we recognize that the
development of this regulation took longer than anticipated,
and we understand your concern over the delay. We are working
very closely with our colleagues in the Department so that we
can expedite this process as quickly as possible.
Q2. In the BBA, Congress directed HCFA to bring ambulance
services under the fee schedule. The rulemaking process has
been completed. Do you believe the implementation of this rule
will be in effect on 1/1/01 as Congress directed?
A2. We expect to publish a proposed regulation based on the
negotiated rulemaking committee's consensus agreement on
September 12. Then there will be a 60-day comment period,
followed by publication of a final rule. Our goal is to
complete this process in time for the fee schedule to be
effective on January 1, 2001 (with a four-year phase-in as
developed by the negotiated rulemaking committee).
Q3. A study was done by Project Hope for the Ambulance
Association. Have you had a chance to review this study? If so,
did you have any comments on the study and the impact on the
cost to ambulance services?
A3. We have not had an opportunity to review this study.
Project Hope generated a smaller study that we examined as part
of our negotiated rulemaking process; however, we understand
the new study is expanded significantly. We would be happy to
discuss this further with you or your staff.
Q4. Last year, this Committee provided more than $1 billion
for the managed care industry to lure them into areas that were
not served by a Medicare HMO. Have any HMOs taken this offer?
If not, where is this money? Do you think it would be a wise
investment to increase payments, once again, to HMOs? Do you
think more money would solve their problem? Or, do you think it
would be a better investment to give that money to our
providers who are providing the care that the HMOs do not want
to pay for? Do you think this money would have been of a
greater benefit to our seniors if it went towards a
prescription drug benefit?
A4. No Medicare+Choice plans (M+C) have taken advantage of
this offer to come back into areas not served by a M+C plan, or
enter the program for the first time in areas not served.
However, some plans whose applications were pending at the time
the Balanced Budget Refinement Act was passed, including our
recently approved private fee-for-service plan, will see the
benefit of this bonus program. It is unclear how much money
will be spent on this bonus, which is tied to the number of
beneficiaries enrolled in the eligible plans, because these
plans only just recently began enrolling beneficiaries.
We believe the best way to ensure that the M+C program
remains a strong part of Medicare is to ensure that all
beneficiaries have access to affordable drug coverage and to
pay plans directly for providing it. The President's reform
proposal to create a voluntary, affordable Medicare
prescription drug benefit for all beneficiaries would do just
that. Under the President's proposal, M+C plans would be paid
through a competitive, market-based process in relation to
their own costs, rather than through a statutory formula that
has resulted in wide variation in rates and beneficiary access
to plans across the country. Plans would be paid $2 billion
directly beginning in January and $25 billion over the next
five years to provide the prescription drug coverage that most
beneficiaries want from managed care. This amount substantially
exceeds the $15 billion over five years that representatives of
the American Association of Health Plans, in testimony before
Congress, have said they need to continue participating in the
M+C program.
Q5. Transplant recipients must take immunosuppressive
medications every day for the life of their transplant. In most
cases, Medicare limits coverage for these medications to 36
months (the BBRA extended coverage for recipients who had a
transplant after Dec. 31, 1996 or who are eligible for Medicare
based on age or disability). For transplant recipients who do
not have private health insurance benefits that include
coverage of immunosuppressive drugs, paying for medications can
be nearly impossible--at a cost of more than $11,000 per year.
For a kidney transplant, the first year expenses with a
transplant average more than $93,000, including follow-up care.
Medicare spending for dialysis patients averages $52,000 a
year. The IOM issued a report that supports Medicare coverage
of immunosuppressive drugs. It just doesn't make sense that
Medicare pays for the transplant but doesn't pay for the
medications to prevent rejection. I have introduced
legislation, HR 1115, with my colleague from Florida, Mr.
Canady, which would eliminate the time limit on Medicare
coverage of immunosuppressive drugs. This bill now has 272
cosponsors. Could you discuss how important this coverage is,
and how it could save Medicare dollars in the long-run, by
reducing the number of re-transplantations, and reducing the
dollars spent on dialysis because of organ rejection?
A5. We, too, believe that the immunosuppressive drug
benefit is a vital component of the overall Medicare benefit
that covers organ transplants, I appreciate your leadership on
this important issue. Unfortunately, we are unable to provide
costs or savings projections on an indefinite extension of the
immunosuppressive benefit.
As you probably know, the President's 2001 budget proposal
would permanently extend the immunosuppressive benefit by one
year, bringing the total number of months of coverage up to 48.
Also, the President has proposed a Medicare prescription drug
benefit, which would provide the security of a prescription
drug benefit for all Medicare beneficiaries.
Under the President's proposal, Medicare would pay 50% of a
beneficiary's prescription drug costs after benefits under
Parts A and B expire. Additionally, catastrophic coverage would
cover 100% of the beneficiary's costs after an out-of-pocket
limit has been reached. In the first year of the benefit (2001/
2002) the out-of-pocket limit is $4,000. Thus, under the
President's plan, beneficiaries would continue to receive Part
B benefits until they expire. They would then be eligible for
50% cost-sharing on their immunosuppressive drugs until they
reach the catastrophic limit. Beyond the catastrophic limit,
Medicare would pay 100% for their drugs.
Q6. Cardiovascular disease is the leading cause of death of
American women--killing more than half a million women each
year. However, Medicare does not cover regular cholesterol
screenings. Hospital charges for cardiovascular disease cost
Medicare more than $26 billion in 1996. Yet, we know there are
steps that can be taken to identify this disease earlier in
order to treat the modifiable risk factors. I am a cosponsor of
HR 3887, the Medicare Wellness Act, which would add several
preventive benefits to the Medicare program, including
cholesterol screening. What should Congress do to give
beneficiaries the tools they need to fight against the nation's
leading cause of death, cardiovascular disease? And, would you
support legislation, such as HR 3887, to add preventive
benefits to Medicare?
A6. Although the Administration has not taken an official
position on H.R. 3887, we strongly support increased attention
to and coverage of preventive benefits. We have implemented the
expanded preventive benefits authorized by BBA 97.
Additionally, in his fiscal year 2001 budget, the President
proposed further improvements to preventive benefits, including
eliminating all beneficiary cost sharing for preventive
benefits. We look forward to working with you ensure Medicare
beneficiaries receive the most effective care possible.
Q7. I have long been concerned that Medicare beneficiaries
are not getting access to the best and most appropriate
technologies and procedures. I understand that there are
several processes that new technologies and procedures must go
through in order to be made available to beneficiaries. The
first process involves making specific coverage determinations
about which medical procedures and products to make available
to Medicare beneficiaries. However, I understand that simply
covering a product or procedure doesn't mean that beneficiaries
will actually have access to it, but that two other processes
exist to establish a ``procedure code'' and then the
appropriate payment category or level for the product. And even
after coverage, coding and payment issues have been resolved,
there still remain the basic mechanics of notifying fiscal
intermediaries and carriers to go ahead and make payment.
Q7: Please explain how coverage, payment, coding, and
intermediary/carrier operations are currently organized in
HCFA. Please explain how HCFA ensures that patients get timely
access to appropriate technologies, and how management
coordinates the various offices at HCFA, as well as the central
and the local carriers who are also involved in many of these
processes.
A7: There are three levels of coverage and payment
determination, each serving important functions in assuring
that beneficiaries have access to appropriate technology. The
vast majority of determinations are made on a case-by-case
basis by our local contractors. Because most new technology
involves only minor modifications to existing technology, these
determinations are usually straight forward and rolled into
existing coding and payment mechanisms. For new technology that
is significantly different, our coding system includes generic
A99'' codes in each benefit category which providers can use to
file claims. Claims with these codes are manually reviewed and
priced. For new diagnostic and surgical procedures provided by
hospitals and other facilities paid through prospective payment
systems (PPS), no coverage determination is generally necessary
as new technology is automatically folded into the appropriate
diagnostic related group (DRG) payment category. (There is one
exception; the new hospital outpatient PPS system includes a
pass through for new technology.) Under the hospital inpatient
PPS system, the actual impact of innovations on costs are
reflected through charges that the facility includes on its
Medicare claims that drive future classification
recalibrations. These charges often show that new innovations
lower overall charges by, for example, decreasing the number of
days patients must remain in the hospital, even if the new
technology itself costs more than what it replaced.
A second, formal level of coverage and payment
determination is also carried out by local contractors when
they develop Alocal medical review policy.@ These policies,
developed by contractor medical directors, outline how
contractors will review claims to ensure that they meet
Medicare coverage requirements. We require that local policies
be consistent with national guidance (although they can be more
detailed or specific), developed with input from medical
professionals (through advisory committees), and consistent
with scientific evidence and clinical practice. The use of
local medical review policy helps avoid situations in which
claims are paid or denied without a full understanding of why.
This resource-intensive process is typically reserved for high
volume/high dollar items or services, and is generally
conducted quarterly to facilitate orderly changes in systems.
We expect to soon release guidance to the contractors designed
to make development of local medical review policy parallel our
new national coverage determination process, providing more
notice and opportunity for providers and the public to have
input and request policies on specific matters. Copies of every
contractor's local medical review policy can be found at
www.lmrp.net.
We substantially improved the National Coverage
Determinations (NCD) process last year to be much more open,
accountable, and explicit in every respect, including the right
of beneficiaries and other members of the public to request
reconsideration of decisions. The new process establishes clear
procedures for how national coverage policy decisions are made,
allows any individual to submit a formal request for a national
coverage decision or reconsideration, institutes timeliness
standards and mechanisms for keeping the public informed about
the status of national coverage issues, and guarantees
beneficiary input through the open meetings of a new Medicare
Coverage Advisory Committee. When an NCD is made, the decision
is immediately posted on our web site and local contractors
generally can immediately begin payment through mechanisms
described above. In rare instances, when an NCD reverses an
earlier national noncoverage policy and requires changes to
claims processing computer systems, additional time may be
necessary before payment can begin. We establish an effective
date by which contractors must provide coverage. Time between
an NCD and an effective date is used to establish new codes and
national payment rates, make changes to claims processing
computer systems, and provide explicit, written instructions on
how the new policy is to be implemented. We have up to 180 days
(tied to the next closest quarterly systems update) to complete
systems changes from the time that instructions are generated,
which can take up to an additional 60 days. However, we have
completed this in less than 180 days for all NCDs under the new
process, and we are continually working to further streamline
this process. This 180 day time frame compares favorably to
other businesses making orderly and efficient changes in
electronic systems like our claims processing systems.
Within HCFA, NCDs are under the purview of the Office of
Clinical Standards and Quality. Payment and coding operations
are the responsibility of the Center for Health Plans and
Providers. Development of local medical review policy is under
the direction of the Program Integrity Group in the Office of
Financial Management. Intermediary and Carrier operations are
overseen by the Center for Beneficiary Services. These offices
work together through the Medicare Contractor Oversight Board
to coordinate coverage and payment for new technologies and to
ensure clear communication of policies to the contractors.
Q8. I understand it can take up to 2 years for HCFA to
change payment amounts or categories to a more appropriate
reimbursement for a new technology. The first year is to
evaluate a full year's worth of HCFA's internal data set--the
Medicare Provider Analysis and Review (MedPAR) file and the
second year to implement the change. Could you please explain
why HCFA does not extrapolate from partial year MedPAR data or
accept statistically valid, verifiable external data from
willing companies?
A8. Partial year MedPAR data or external data (used in
setting inpatient hospital payments) do not take into account
the impact of total costs on a treatment episode, which is how
care is paid for under Medicare's prospective payment systems.
New technologies that in and of themselves may be more
expensive than what they replace often lower total costs once
fully implemented into patient care. For example, laparoscopic
surgical equipment for gall bladder surgery is more expensive
than the traditional surgical equipment it replaced, but it
substantially reduced the number of days patients were required
to remain in the hospital, and thus lowered total costs for
gall bladder surgery. An accurate assessment of the total
impact would not have been feasible with only limited data on
costs of the equipment itself.
Q9. As you may know the FDA has specific statutory
timeframes within which they are required to review and approve
medical technology applications for safety and effectiveness.
FDA is currently operating within its statutory review
timeframes for 510(k)s and has made great strides with respect
to PMAs, In fact, in its annual budget submissions, the agency
submits information on how well it has performed and the
resources needed to meets it review and approval performance
goals. I understand that it can sometimes take years--four
years or more--for a product to get covered, coded, and
reimbursed appropriately. Does HCFA keep track of the
timeframes involved in making coverage, coding, and
reimbursement decisions on each of the technologies and
procedure applications it receives? Can you please tell me how
long it takes HCFA to make a coverage determination, coding
decisions, and payment decisions?
A9. The process for a national coverage determination (NCD)
could take less than 90 days when evidence is clear and
compelling. More complex determinations referred to Medicare
Carrier Advisory Committee or outside technology assessment
bodies can take longer, depending on the amount of research and
deliberation these outside experts feel is appropriate to
accurately assess whether the new product or procedure in fact
meets the statutory requirement of being reasonable and
necessary. Our limited experience to date suggests that the
independent experts who, with industry and consumer
representatives, make MCAC assessments, can take up to several
months to make these determinations.
However, it is important to stress that local claims
processing contractors can generally make payment for newly
approved products or procedures immediately after an NCD is
announced, either through an existing code that may apply or
through a miscellaneous code that can be used when no existing
code is appropriate. Payment amounts for claims filed under the
miscellaneous code are determined by these contractors until a
new code and any necessary systems changes are implemented and
a national payment rate is established. In rare instances, when
an NCD reverses an earlier national noncoverage policy and
requires changes to claims processing computer systems,
additional time may be necessary before payment can begin. We
establish an effective date by which contractors must provide
coverage. Time between an NCD and an effective date is used to
establish new codes and national payment rates, make changes to
claims processing computer systems, and provide explicit,
written instructions on how the new policy is to be
implemented. We have up to 180 days (tied to the next closest
quarterly systems update) to complete systems changes from the
time that instructions are generated, which can take up to an
additional 60 days. However, we have completed this in less
than 180 days for all NCDs under the new process, and we are
continually working to further streamline this process. This
180 day time frame compares favorably to other businesses
making orderly and efficient changes in electronic systems like
our claims processing systems.
Also, with regard to coding issues it is important to
understand that many stakeholders are involved in the
assignment of national codes and computing national payments.
Providers, particularly hospitals and physician
offices, seek stability in coding and payment. Frequent changes
and updates disrupt claims processing systems, raise issues of
compliance, and create uncertainty in payments;
The medical community has an interest in assuring
that coding systems are clinically coherent, and;
Private and other public insurers often use the
same coding and payment systems as HCFA.
We cannot unilaterally assign codes without consulting all
of these stakeholders, and that is why these processes take
time. Moreover important changes stemming from the Health
Insurance Portability and Accountability Act will require
greater standardization and consultation across the industry.
Yet we understand that the timeframes for assigning new
national codes for breakthrough technologies can be longer than
the manufacturing industry would like. As we have done in the
past, we welcome the opportunity to meet with you and other
stakeholders to examine potential ways to speed up this
process.
It also is important to note that the vast majority of
determinations are made by our local contractors. There have
only been approximately three hundred NCDs over the life of the
Medicare program; 15 in the past 12 months. And we have
substantially improved the NCD process to be more open,
accountable, and explicit in every respect.
Q10. In April 1999, HCFA published a notice announcing a
new national coverage process including procedures for seeking
reviews by the new Medicare Coverage Advisory Committee. In
that notice, HCFA stated that after a coverage determination
was made, HCFA expected ``to make a payment change effective
within 180 calendar days of the first day of the next full
calendar quarter that follows the date we issue the national
coverage decision.'' Can you please help me understand that
statement? Am I correct in interpreting this to mean that it
will take HCFA 180 days to issue a code, even after the Agency
has already affirmatively decided to cover a new technology or
procedure? If so, do you believe that it might be of better
service to our beneficiaries to reduce the number of days that
it takes to issue a code?
A10. Local contractors can generally begin payment
immediately after a national coverage determination (NCD) is
made, either through existing coding and payment mechanisms, or
through generic A99'' codes in each benefit category which
providers can use to file claims that are then manually
reviewed and priced. In rare instances, when an NCD reverses an
earlier national noncoverage policy and requires changes to
claims processing computer systems, additional time may be
necessary before payment can begin. We establish an effective
date by which contractors must provide coverage. Time between
an NCD and an effective date is used to establish new codes and
national payment rates, make changes to claims processing
computer systems, and provide explicit, written instructions on
how the new policy is to be implemented. We have up to 180 days
(tied to the next closest quarterly systems update) to complete
systems changes from the time that instructions are generated,
which can take up to an additional 60 days. However, we have
completed this in less than 180 days for all NCDs under the new
process, and we are continually working to further streamline
this process. This 180 day time frame compares favorably to
other businesses making orderly and efficient changes in
electronic systems like our claims processing systems.
Chairman Thomas. And could we call the next panel in,
please.
We thank the second panel for their patience. Don Richey,
who is the administrator of the Guadalupe Valley Hospital in,
is it Seguin, Texas? Seguin; Dr. Richard Corlin, who is the
president-elect of the American Medical Association; Michael R.
Walker, chairman and chief executive officer of the Genesis
Health Ventures, Kennett Square, Pennsylvania, here on behalf
of the American Health Care Association; Judith G. Sutherland,
president and chief executive officer, Visiting Nurse Corp. of
Colorado, from Denver, Colorado, on behalf of the Visiting
Nurse Associations of America; George Renaudin, II, senior vice
president of administration at the Ochsner Health Plan of
Louisiana in Metairie, Louisiana, on behalf of the American
Association of Health Plans; and Howard Bedlin, who is the vice
president for Policy and Advocacy of the National Council on
Aging.
Now that you are all seated, thank you very much. Any
written testimony that you have will be made a part of the
record, and you may, in the time that you have, address us in
any way that you see fit. And why don't we just start over here
with the gentleman from Texas, Mr. Richey, and then just move
across the panel.
Let me say, one, you need to turn on your mikes and, two,
the mikes are very uni-directional, so you need to speak
directly in them.
Thank you.
STATEMENT OF DON RICHEY, ADMINISTRATOR, GUADALUPE VALLEY
HOSPITAL, SEGUIN, TEXAS, ON BEHALF OF THE AMERICAN HOSPITAL
ASSOCIATION
Mr. Richey. Thank you very much, Mr. Chairman. My name is
Don Richey. I am the administrator of Guadalupe Valley Hospital
in Seguin, Texas. It is a pleasure for a country boy to be here
in this august attendance today and appear before you on behalf
of the American Hospital Association.
As you know, the BBA resulted in some major cuts in
hospital reimbursement, plus many unintended consequences,
especially for rural hospitals. In fact, some of the changes
were quite confusing and problematic. For instance, in Texas,
we think hold harmless means hold harmless. It appeared that
congressional intent was to make reimbursement to rural
hospitals whole rather than a reduced amount. That would create
some real problems in our cash flow.
In our particular situation at Guadalupe Valley Hospital, a
couple of years ago we had 18 home health agencies in our
community. BBA cuts and changes in the programs eventually
eliminated all but one. That was the hospital-based home health
agency. It is, at this point, losing about $150,000 a year, but
we consider it a necessary service for our patients, and
therefore have continued to operate it.
We also had a skilled nursing facility. It was a hospital-
based skilled nursing facility that was built from scratch and
deemed by the Medicare Program as a model program and one of
the best in the whole State of Texas. Seventy percent of the
patients went home after their skilled nursing stay, and yet
the BBA cuts eliminated that program, too, by cutting our
reimbursement from $700 a day to about $250 a day. We had to
shut the unit. Now, 250 patients instead end up going usually
to a rehabilitation hospital at $1,500 a day for a 20-day stay
and then off and on to a nursing home. So it is costing the
government a lot more money, and the results aren't nearly as
good as they would have been with our skilled nursing facility.
That is just one hospital's story.
I have got in front of me a red book that I would like to
submit for your review. It is a story of 27 institutions in and
around San Antonio who basically have bared their souls and
talked about staff cuts, eliminating programs and services, and
about losing, on average, a half-a-million dollars per month,
per institution.
We also have some new problems coming up. We've got
employee shortages, particularly in the area of registered
nurses and pharmacists. Prescription drug utilization is going
up, and the new drugs are costing more. We have got new blood
products coming out. They are better, but they are also more
expensive, and we have got new technology which also costs
more.
I am asking you today to consider a 2-year full market-
basket update, H.R. 3580. Inflation from 1998, 1999, and 2000
was up about 8.2 percent. Payments were only up about 1.6
percent. We can't continue to operate in that kind of
methodology.
We are also encouraging you to adopt a rural relief agenda.
Rural hospital closures are devastating to rural hospitals. And
contrary to popular opinion, the closing of a rural hospital
not only is hard for that community, but it is also hard on the
urban hospitals who end up picking up that adverse case mix. So
it doesn't help anybody. H.R. 4677, the Rural Hospital Closure
Agenda, would help us very much.
We would also ask you to cut further reductions in Medicare
and Medicaid disproportionate share payments--H.R. 3698, and
then, finally, to delay outpatient PPS until it is fully
workable. We, at Guadalupe, anticipate benefiting under APCs.
We think it is going to work for us. It is going to cost the
patients more in Texas, and that has not been explained to
them. But we think it is going to work to our benefit. But it
only works where we get one payment from the government, not a
partial payment, then a next payment and have to do all kind of
billing gyrations with the rest of the secondary payers and the
patients themselves.
We support prevention in the form of screening mammograms,
and stereotactic biopsies and PSA testing. Those are good
programs. We agree that home health agencies should be spared
the 15-percent cut, not just deferred, but completely have that
cut eliminated. We support prescription programs for Medicare
patients. We know that, and even in Medicaid in Texas, patients
get their prescriptions. We want to see rural hospitals
survive, and we want to have reasonable reimbursement for
Medicare and Medicaid patients all across the Nation. We know
that Medicare is Social Security.
Mr. Chairman, we have a booming economy and a $2.2 trillion
surplus. Soon we are going to have baby boomers joining the
Medicare rolls. This is not the time to make cuts. This is the
time to preserve the Medicare system. Let us keep Medicare
secure.
Thank you very much.
[The prepared statement follows:]
Statement of Don Richey, Administrator, Guadalupe Valley Hospital,
Seguin, Texas, on behalf of the American Hospital Association
Mr. Chairman, I am Don Richey, administrator of Guadalupe
Valley Hospital in Seguin, Texas. I appear today on behalf of
the American Hospital Association's (AHA) nearly 5,000 member
hospitals, health systems, networks, and other providers of
care. We appreciate this opportunity to tell you first hand the
dramatic impact of the Balanced Budget Act of 1997 (BBA) on
America's hospitals and health systems.
In 1997, Congress and the White House faced a large and
seemingly intractable federal budget deficit and projections
that the Medicare Hospital Insurance Trust Fund would be
bankrupt by 2002 unless Washington acted.
Congress responded with the 1997 Balanced Budget Act. The
Congressional Budget Office (CBO) estimated that the BBA would
cut $116 billion from 1998 to 2002 in projected Medicare
spending. More than $50 billion of these cuts were estimated to
come from reduced payments to hospitals. An additional $10
billion was to be cut from Medicaid hospital payments.
The intent of Congress and the White House was to save the
Medicare program. The result, though, threatens the viability
of America's hospitals and health systems.
According to projections, the five-year impact of the BBA
for hospitals and other Medicare providers is over $200
billion, partially due to larger than anticipated reductions to
providers. This unintended and excessive reduction in Medicare
spending is severely affecting hospitals' ability to provide
vital patient care services.
BBA Medicare and Medicaid spending cuts have especially
victimized rural hospitals. My hospital, Guadalupe Valley is a
105-bed public hospital with a diverse patient population,
serving residents of Seguin and Gonzales, Texas, as well as
Mexico. While it located in a metropolitan statistical area, in
reality, the hospital acts and serves as a rural provider. For
instance, the two closest trauma care access points are each an
hour away--University Hospital in San Antonio and Brackenridge
Hospital in Austin.
Prior to the BBA, the hospital opened a skilled nursing
facility (SNF), which was ranked number one in the state by
Medicare. However, the payment reductions forced us to close
the unit. We operate the only home health agency in town.
Before the BBA, there were 18 home health providers in the
community. Since the BBA, they have all closed, leaving
Guadalupe Valley as the sole furnisher of home health services.
And Guadalupe Valley is just one example of the hardships
caused by the BBA's cuts. Across the country, hospitals are
struggling. Services are being cut and facilities are being
impacted:
For Wilkes-Barre General Hospital in Wilkes-Barre,
Pennsylvania, BBA Medicare and Medicaid spending cuts have
forced the hospital to make some tough decisions... like
eliminating a diabetes center; health promotion programs;
geriatric psychiatric inpatient services; a Women's Health
Network; the School of Anesthesia; and the ambulance service.
In Arizona, BBA cuts have forced the John C.
Lincoln Health Network to discontinue its disease management
programs for patients with congestive heart failure and chronic
pulmonary disease. ``Health Source,'' a free health information
service, also was discontinued. And a busy skilled nursing care
unit, which averaged 20 patients a day, was closed. Why? Take
for example, one patient whose stay was 93 days. The facility's
costs per day were $650; Medicare reimbursed only $260,
resulting in losses of $36,270. Hospitals simply can't continue
to provide services their communities need if doing so
guarantees financial hemorrhage.
BBA cuts are affecting more than just Medicare
beneficiaries. In Stuart, Florida, for example, Martin
Memorial, a 336-bed facility, will shut down its nurse midwife
program in October. The hospital is facing a $30 million
decrease in Medicare reimbursements over five years. Martin
Memorial had no choice but to close the 17-year program.
In Massachusetts, the state is expected to lose
close to 23,000 health services sector jobs by 2005, according
to a Standard & Poor's/DRI report. The BBA's five-year cuts of
$1.7 billion for the state's hospitals are a significant cause
of the job hemorrhage.
Last year, Congress and the White House recognized some of
the BBA's ``unintended consequences'' on hospitals and the
patients they serve, when they enacted the Balanced Budget
Refinement Act of 1999 (BBRA), which restored an estimated $16
billion of the BBA's Medicare reductions. While the BBRA marked
an important first step to remedying the BBA's unintended
consequences, America's hospitals need additional relief. And
here's why.
THE CASE FOR BBA RELIEF 2000
When Congress passed the BBA, CBO estimated that hospitals
would contribute $53 billion over five years toward deficit
reduction. Estimates now put that number well over $75 billion.
Congress should return, at a minimum, the excess funds it did
not intend to cut to America's hospitals.
The BBA reduces Medicare payments for hospital inpatient
services by providing payment updates that are below the market
basket index, which is Medicare's measure of inflation. This
below-inflation update has seriously hampered hospitals'
ability to keep pace and maintain access to services for
Medicare beneficiaries. Over fiscal years 1998, 1999 and 2000,
hospital inflation rates rose a total of 8.2 percent, while the
payment updates have totaled 1.6 percent.
Compounding the effects of the BBA is a series of market
pressures no one could have predicted in 1997. Labor, drug and
technology costs are skyrocketing. The costs of caring for all
of our patients, including Medicare beneficiaries are
increasing rapidly.
Since 1998, annual wages and benefits paid to registered
nurses increased 6 percent, total employee benefits increased
nearly 7 percent, and pharmacists' wages increased more than 25
percent. As stated earlier, for the same period, hospitals'
annual Medicare updates have totaled only 1.6 percent.
The cost of prescription drugs has increased dramatically.
The average price for new drugs is about $71, more than twice
the average price for previously existing drugs. New and more
expensive drugs are constantly emerging, replacing older drugs
and increasing the overall use of drugs in patient care. Yet,
only a fraction of the cost of new drugs is included in the
inflation measurement the government uses to calculate hospital
payment updates.
The cost of blood also is on the rise. The Food and Drug
Administration soon will approve new blood screening techniques
to make our blood supply safer. But quality improvements will
increase the cost of blood by $40 to $50 a pint, a 50 percent
jump. New techniques, such as ``viral inactivation,'' are
expected to double or triple the cost of blood. However, the
cost of these new techniques is not included in today's measure
of hospital inflation.
In addition, providers will be required to make a major
investment to comply with new federal administrative
simplification standards and with new patient record privacy
and security requirements. The White House estimates that new
privacy requirements will increase the costs for providers and
health plans by $1.2 billion for the first year alone, and $3.8
billion over five years. Other estimates, however, have put the
cost as high as $43 billion. Current Medicare payment policies
do not reimburse for these costs.
The economic outlook is so grim, that financial experts are
losing confidence in what has historically been a fairly stable
industry. Moody's Investor Service reports that downgrades in
bond ratings for hospitals were the most ever in 1999,
outpacing upgrades 5-1. And this month, Moody's reported that
the 2000 financial picture is not improving. In fact, the
rating agency warned that the amount of debt affected by
downgrades in 2000 may be on course to actually exceed the
total amount of debt downgraded for 1999. A poor financial
prognosis means it costs hospitals more to borrow and invest in
the people, technology and infrastructure necessary to keep
pace.
At the same time, America's hospitals and health systems
continue to serve as the nation's health care safety net...
caring for those who have nowhere else to go for care. Current
estimates put the number of Americans who lack health insurance
at about 44 million. That number is projected to continue to
increase, soaring to 55 million by 2010. Hospitals are
America's safety net for caring for the uninsured, but at
increasing costs. Government support makes up only a small
portion of costs for treating the uninsured.
BBA cuts... rising costs... a darkening financial horizon
... the problems of the uninsured. Our ability to take care of
our patients and communities is being seriously challenged. But
it's not just hospitals that are saying America's health care
providers are facing a financial crisisa...outside experts
confirm that we need a cost of caring adjustment.
WHAT OTHERS ARE SAYING
Recently, the Medicare Payment Advisory Commission
(MedPAC), Congress' advisor on Medicare payment issues, agreed
that more needs to be done. The commission recommended that
Congress increase the inpatient prospective payment system
update by between 3.5 percent and 4 percent--more than twice
what is in current law. MedPAC's data analysis shows that
nearly 35 percent of the nation's hospitals are operating in
the red. This is due, in part, to the dramatic Medicare cuts
contained in the BBA. MedPAC recognized the need for Medicare
to keep pace with the high cost of providing health care today.
In addition, two independent studies, one by the Lewin
Group and another by Ernst & Young/HCIA-Sachs confirmed that
hospitals are unable to cover their costs when treating
Medicare patients. Lewin predicts that without further relief
from the BBA, 60 percent of hospitals may lose money treating
Medicare patients by the end of 2004. And the Ernest & Young
study reinforces the Lewin results, by showing that total
Medicare margins, which measures the operating margin on all
hospital services to Medicare patients, continue to decline to
dangerously negative levels.
No organization, including the nation's hospitals and
health systems, can continue to serve if it gets paid less than
the cost of providing services.
Mr. Chairman, it's time for lawmakers to heed both the
recommendations and the warnings of financial experts.
Hospitals and health systems need a cost of caring adjustment.
Last week, CBO announced new on-budget surplus estimates of
$2.2 trillion over 10 years--estimates that have more than
doubled in four months. This is further proof of what we've
known for a long time: Congress and the Administration have the
resources to reverse the unintended consequences of the BBA.
It's time for Washington to act.
BBA RELIEF 2000
The BBA has hit hospitals hard in ways no one could have
foreseen when the law was written. With today's booming
economy, now is the time to remedy the flaws of the BBA. And
the best way is to provide relief to all hospitals by repealing
the last two year's of the BBA's inpatient market basket
reductions.
Indeed, Washington has taken notice and the momentum for
BBA relief is growing. The AHA is pleased to cite that 299
representatives have cosponsored the Hospital Preservation and
Equity Act (H.R. 3580), which would restore the last two year's
of the BBA's inpatient market basket reductions. Similar
legislation in the Senate is also gaining support with 55
senators cosponsoring Medicare inpatient relief (S.2018).
The AHA is also asking Congress for targeted relief,
including:
For outpatient services, provision of the full
market basket update;
For teaching hospitals, continuation of the
current adjustment for indirect medical education of 6.5
percent;
For rural hospitals, a package of relief that
would include: equalizing the qualification threshold for
payments to rural hospitals under the Medicare disproportionate
share (DSH) program; improving flexibility for Medicare
critical access hospital program; updating current rural
payment classification systems; providing a payment adjustment
for rural ambulance providers; and several technical changes
for rural hospital services;
And for America's safety net hospitals, repeal of
the current state caps on Medicaid DSH payments.
Mr. Chairman, we enjoy a booming national economy, which is
fueling a federal budget surplus of billions of dollars. We can
avert a health care crisis in our communities. We urge you and
your colleagues to support our efforts to secure additional BBA
relief now and help ensure that high-quality health care will
be there when our communities need it.
Thank you for providing me with the opportunity to address
you today.
Chairman Thomas. Thank you, Mr. Richey.
Dr. Corlin?
STATEMENT OF RICHARD F. CORLIN, M.D., PRESIDENT-ELECT, AMERICAN
MEDICAL ASSOCIATION
Dr. Corlin. Thank you, Mr. Thomas. Good afternoon. I am
Richard Corlin. I am a gastroenterologist in private practice
in Santa Monica, California, and I am president-elect of the
AMA. We appreciate the opportunity to appear before this
Subcommittee to present our views about refining the Balanced
Budget Act of 1997, the BBA. Today, I want to discuss four
recommendations for providing needed relief under the BBA.
First, savings from the BBA have far exceeded CBO
forecasts. HCFA and the CBO have attributed this to their
success in combatting so-called waste, fraud and abuse, yet
this has come with a hefty price tag. HCFA, in its zeal to
reduce waste, fraud and abuse, has imposed mountains of complex
regulations that often interfere with the delivery of quality
medical care.
For instance, HCFA contractors subject many physicians to
post-payment audits that egregiously interfere with physicians'
medical practices. Carriers make inappropriate use of a
technique called extrapolation to calculate alleged
overpayments, and physicians are denied all due process rights
to an appeal unless they agree to an extremely invasive and
expensive carrier audit. Physicians often cannot get answers
from carriers about routine billing questions and procedures,
and indeed are not informed of a billing problem until there is
a post-payment audit. To make matters worse, HCFA does not
adequately educate physicians on coding, documentation and
coverage issues.
Physicians do not want to deal with the hassles any more.
Some are retiring or leaving the Medicare Program. For example,
a cardiologist in my, and the Chairman and the Ranking Member's
home State of California has been repeatedly subject to carrier
audits. The first few audits turned up a total clean bill of
health. Even though there was no change in his billing
practice, the carrier recently assessed that physician a
$175,000 overpayment based on another audit done just 1 year
later. He then had less than 30 days to repay the $175,000.
We urge that the Subcommittee, number one, ensure that HCFA
allocate enough resources for education purposes and, two,
require HCFA to reform its post-payment audit process.
Second, I would like to discuss regulatory costs imposed on
physicians under the BBA. Despite that HCFA is required by law
to take certain regulatory costs into account when updating the
physician payment schedule, this does not occur. We recommend
that HHS, including HCFA, be required to calculate the costs of
new regulations and increase Medicare physician payments each
year to account for these costs.
Next, I would like to address physician practice expenses.
We appreciate the Subcommittee's efforts under the BBA to
correct HCFA's initial approach to establishing a new system of
payment for physician practice expenses, yet more work is
needed. HCFA's current practice expense methodology and data do
not accurately reflect physicians' actual practice costs, and
we are concerned that this will adversely impact patients,
physicians and health care providers.
Thus, we urge the Subcommittee to include in any BBA
refinement legislation provisions that would maintain for the
year 2000 and subsequent years the 50/50 formula for
determining practice expense relative value units, with an
exception for certain office visits and consultation services.
This proposal is supported by 40 physicians offices, teaching
hospitals, medical schools and clinics, and the AMA's House of
Delegates recently voted to seek legislation to implement this
proposal.
The proposal strikes an appropriate balance by allowing
increases in those services, while generally limiting large
reductions in payments for other services. Thus, our support is
predicated on the inclusion of the exception for office visits
and consultations.
And, finally, I would like to address deferment of student
loans for residents. The downstream effects of Medicare cuts
under the BBA, especially with respect to GME, are difficult
for medical residents who are required to repay enormous
amounts on their student loans while being paid a stipend that
barely covers their ongoing expenses. Accordingly, we urge the
Subcommittee to ensure that the BBA refinement package includes
a provision making it easier for residents to qualify for a
student loan economic hardship deferment during their medical
residency.
Thank you very much, and we would be pleased to respond to
any questions.
[The prepared statement follows:]
Statement of Richard F. Corlin, M.D., President-Elect, American Medical
Association
We appreciate the opportunity to provide our testimony to
the Subcommittee concerning the American Medical Association's
(AMA) recommendations as the Subcommittee moves forward in its
consideration of further refinements to the Balanced Budget Act
of 1997 (BBA).
The AMA deeply appreciates the Chairman's and the
Subcommittee's support of refinements of the Medicare physician
payment system that were included in the Balanced Budget
Refinement Act (BBRA) enacted last fall. Further refinements,
however, are needed.
The BBA imposed tremendous changes in the Medicare program.
Although these provisions required regulatory implementation,
the Health Care Financing Administration (HCFA) has imposed
massive amounts of burdensome regulatory requirements on the
physician, provider and beneficiary communities beyond what
Congress intended. Indeed, physicians are subject to over
100,000 pages of Medicare regulations and policies, including
preambles to the regulations, which, while attempting to
explain the intent of the often convoluted and ambiguous
regulations, often raise more questions than they answer.
Further, in addition to new and existing regulations,
physicians must be familiar with the volumes of ever-changing
bulletins and carrier materials sent to their offices.
The BBA and related implementing regulations have adversely
impacted or threaten to have such impact on Medicare patients'
access to and quality of care. Thus, certain BBA ``fixes'' are
needed to ensure that these results do not continue to plague
beneficiaries. Accordingly, the AMA recommends that the
Subcommittee approve the following refinements to the BBA:
Health Care Financing Administration (HCFA) Reform
The AMA recommends that the Subcommittee include in any
BBA-refinement package provisions to (1) ensure that HCFA and
its carriers devote the proper level of resources to educating
physicians concerning Medicare coding, billing and
documentation requirements and (2) reform HCFA's post-payment
audit process by (i) allowing physicians to maintain their due
process rights; (ii) requiring ongoing communication between
the carrier and physician during the audit; (iii) ensuring that
physicians who voluntarily remit overpayments to HCFA will not
be targeted for future audits; and (iv) curtailing HCFA's use
of extrapolation for physicians' inadvertent bill errors.
Actual savings from the BBA have far exceeded the amount
that the Congressional Budget Office (CBO) had forecast when it
``scored'' the legislation in 1997 as it was being considered
prior to its enactment, and payment reductions to physicians
and health care providers are steeper than anticipated by those
forecasts. These cuts have impacted the entire industry,
including patients.
The CBO and HCFA often have alleged that this discrepancy
between CBOs original savings forecast and reality is due, in
large part, to HCFA's success in combating ``waste, fraud, and
abuse.'' Yet, such ``success'' has come with a hefty price tag.
In its zeal to reduce such ``waste, fraud, and abuse,'' HCFA
has gone to the extreme by imposing mountains of needlessly
complex regulations and violating physicians rights to due
process and basic fairness.
HCFA contractors are subjecting many physicians to post-
payment audits, which amount to egregious carrier interference
in physicians' medical practices. During these audits, HCFA
contractors identify possible billing errors from a small batch
of claims and use these possible errors to ``extrapolate''
enormous overpayment amounts from physicians, suppliers and
providers. Since the amount is determined through
extrapolation, it can easily rise to tens of thousands of
dollars. Once carriers arrive at this projected overpayment
amount, carriers give physicians three options: (1) repay the
extrapolated amount and waive their appeal rights; (2) repay
the extrapolated amount and submit additional information while
waiving their appeal rights; or (3) open up their practice to a
statistically valid random sampling (SVRS) of claims during the
same time period. HCFA's carrier manual options prevent
physicians from retaining their due process rights unless they
agree to open up their practices to a larger SVRS audit. During
this process, many HCFA contractors have no direct
communication with the physician, supplier, or provider, who
frequently have difficulty obtaining answers from the carrier
regarding the carrier's interpretation of correct billing
procedures. Thus, physicians feel compelled to settle any
assessed ``overpayment'' with the carrier in order to avoid an
even more protracted, invasive and expensive carrier audit.
HCFA's overzealous enforcement activities are forcing
physicians to spend less time on patient care and too much time
completing paperwork in order to avoid carrier hassles and the
possibility of an unwarranted, costly and lengthy post-payment
audit. Further, some physicians are retiring from medical
practice or are leaving the Medicare program because they
simply can not tolerate the hassle of participating in the
program anymore. In addition, many physicians view billing
Medicare as a legally treacherous endeavor, as the below
examples demonstrate----
In Idaho Falls, a family practice of three
physicians recently left the Medicare program. Although they
perceived their billing practices as meeting HCFA's confusing
and massive regulatory requirements and never received any
notification of billing problems from their carrier, the
practice was subjected to a post-payment audit. As a result,
the practice was deemed by the carrier to owe the Medicare
program tens of thousands of dollars. The physicians agreed to
settle with HCFA because they could not risk undergoing a more
protracted and expensive audit. After the audit, each of these
physicians dropped out of Medicare because they could not be
certain they would be able to comply with Medicare's burdensome
and confusing billing policies. The prospect of another onerous
audit was daunting. Consequently, many patients in the Idaho
Falls area were left without their family physician.
In northern California, a cardiologist underwent a
number of audits over the last few years, and during the first
few audits the physician had a ``clean bill of health..''
Nevertheless, in the physician's last audit, the carrier
assessed the physician $175,000, even though the physician
continued to bill in the same manner as during the first few
audits. The physician then had less than 30 days to payback the
alleged $175,000 ``overpayment.''
In Denver, Colorado, the ratio of Medicare
patients to physicians who are willing to participate in the
program no longer appears to be a sufficient to adequately
treat these patients. Many Denver physicians attribute the
situation to HCFA's current ``waste, fraud, and abuse''
initiatives.
The BBA requirements and HCFA's subsequent regulatory
burden threatens patient access to care--especially in rural
areas--which, in turn, affects quality care.
Finally, although HCFA expects physicians to understand all
of its confusing and often inconsistent regulations, notices,
fraud alerts, and program memoranda, the agency does not
adequately educate physicians, especially with regard to
Medicare billing requirements. Indeed, physicians cannot
receive written consistent and clear answers from their
carriers regarding coding, documentation and coverage issues.
Accordingly, as discussed above, we urge the Subcommittee
to ensure that any BBA-refinement legislation requires HCFA to
remedy its over-zealous regulatory approach to implementation
of the BBA, especially with respect to the agency's physician
and provider education process as well as its post-payment
review enforcement activities.
HHS Accountability for Regulatory Costs
Last year, this Subcommittee ensured that provisions were
included in the BBRA to clarify and correct certain fundamental
flaws in the method by which physicians are paid under the
Medicare physician payment schedule, and, specifically, under
the sustainable growth rate system. We greatly appreciate the
Chairman's and the Member's of this Subcommittee efforts in
enacting these important refinements, and urge you to continue
your efforts in this refinement process of the Medicare
physician payment schedule.
The cost of the numerous BBA and other burdensome
regulatory requirements discussed above impose tremendous costs
on physicians' medical practices. Yet, much of these compliance
costs must be absorbed by physicians' practice. We recommend
that the Secretary of the Department of Health and Human
Services (HHS) and HCFA be required to calculate the costs of
new regulations and increase Medicare physician payment rates
each year to account for these costs.
HCFA annually updates Medicare payments to physicians to
account for certain factors, including inflation and
legislative and regulatory factors affecting physician
expenditures. Yet, these updates do not take into account the
costs of compliance with the continuing onslaught of costly BBA
and other regulations.
For example, HCFA recently proposed two new codes to cover
certain services that HCFA requires physicians to provide for
home health patients. HCFA has incredulously proposed to
decrease Medicare payments to physicians overall to cover any
additional costs billed under these new codes. HCFA alleges
that such a decrease is justified because physicians are
already paid under other codes for these home health services,
and thus physicians should not be able to double bill for the
same services. This is not the case. Physicians have never been
paid for these services, yet HCFA is proposing to cut alleged
``payments'' to physicians for services they are required to
provide.
We urge the Subcommittee to pass legislation requiring the
Secretary of HHS to determine the cost of each regulation on
physicians' practices (and not simply those regulations
affecting the physician payment schedule) and annually take
such costs into account when updating Medicare payments to
physicians. Further, for oversight purposes, we recommend that
the Secretary be required to report to the Medicare Payment
Advisory Commission (MedPAC) and the General Accounting Office
(GAO) on the costs imposed by all relevant regulations and to
consult with organizations representing physicians concerning
the methodology used in determining such impact. Finally, we
recommend that the GAO advise Congress on improvements to the
Secretary's methodology for calculating these regulatory costs.
Physician Practice Expenses under the Medicare Physician
Payment Schedule
We urge the Subcommittee to include in any BBA-refinement
package legislative provisions that would maintain for the year
2000 and subsequent years the ``50/50'' formula for determining
practice expense relative value units, with an exception for
certain office visit and consultation services.
In 1994, Congress directed HCFA to establish a new system
for Medicare payment to physicians for their overhead practice
expenses, which was to be based on the relative practice
expense resources used in furnishing a service. As a result of
concerns with HCFA's initial approach to establishing this new
system, Congress, under the BBA, intervened and provided HCFA
with specific instructions for developing new practice expense
resource-based relative value units. Congress further directed
that the new system be implemented under a four-year transition
period, with full implementation in 2002.
Although we are already half-way through the transition
period, HCFA has failed to comply with most of the practice
expense mandates under the BBA and the current methodology and
data do not accurately reflect physicians' actual practice
costs. Indeed, HCFA's Administrator Nancy Ann DeParle recently
stated before the House Appropriations Committee that ``we do
not believe that it is possible to determine actual physician
expenses associated with providing services to Medicare
patients.'' Further, previous budget constraints have made it
even more difficult for HCFA to develop a system that fairly
reflects physicians' practice costs. Consequently, we are
concerned that the current plan will adversely impact
physicians and many other health care providers, as well as
patient access and quality of care. Thus, an immediate remedy
is required.
At the AMA's June meeting, our House of Delegates agreed
that we should seek legislation that would maintain for 2000
and subsequent years the 50/50 formula for determining practice
expense relative value units for all services except for
certain office visit and consultation services which would be
based entirely on the relative practice expense resources
involved in furnishing the service.
This proposal, which is supported by 40 physician
organizations, teaching hospitals, medical schools and clinics,
would also allow the 50 percent of the relative value units
that are based on resource costs to continue to be subject to
review and refinement. We urge the Subcommittee to include this
proposal in your BBA-refinement package.
We emphasize that the AMA's support for this proposal is
predicated on the inclusion of an exception for office visits
and consultations. We believe that by allowing increases in
these services while generally limiting large reductions in
payments for other services, the proposal strikes an
appropriate balance. Payments for primary care services would
be increased to help protect Medicare patients' access to these
services without the need for huge payment cuts that could
jeopardize beneficiaries' access to needed procedures. We could
not endorse a plan that does not have both of these key
elements.
Loan Deferment for Residents
We further urge the Subcommittee to include in any BBA-
refinement package an amendment to improve the formula for
determining whether medical residents can qualify for a student
loan deferment during residency.
The downstream effects of Medicare cuts under the BBA,
especially with respect to GME, are difficult for medical
residents who are required to re-pay enormous amounts on their
student loans during their residency while being paid a stipend
that barely, if at all, covers their expenses.
Currently, under the Higher Education Act, there is a very
strict formula based on ``economic hardship'' for determining
whether a student can get a loan deferment. This formula is
much too narrow to be effective, and many medical residents who
legitimately need a loan deferment for economic reasons fail to
qualify. By the time medical students begin their residency
programs, which are generally four or more years in duration,
they must begin to repay their medical school loans, yet they
typically are not paid enough to make ends meet.
Based on a federal debt burden of $72,000 and national
average figures (using full-time pay for first year residents
and monthly housing payments), a typical resident would be left
with less than $440 a month, after paying federal taxes,
housing and loan payments. This amount must cover all other
expenses such as food, insurance, utilities, telephone, state/
local taxes, transportation, medical books, computer-related
expenses, professional memberships, educational conferences,
health care expenses and clothing. Yet, under current law, this
resident would not qualify for a deferment and thus would have
to begin repaying his or her loans.
With a minor adjustment to the formula, residents with over
$48,000 in federal debt (rather than $72,000) could qualify for
federal loan deferment during their residencies.
Thus, we urge the Subcommittee to approve a BBA-refinement
provision that would permit residents, through a more realistic
economic hardship formula, to obtain deferments for their full
initial residency period if they continue their education
through a medical internship or residency program.
We thank the Subcommittee for the opportunity to provide our views
concerning the foregoing matters, and appreciate the Subcommittee's
efforts to provide relief under the BBA. We look forward to working
with the Subcommittee to achieve reasonable remedies for hardships
imposed by the BBA and related burdensome regulatory requirements on
Medicare patients, physicians and the provider community.
Chairman Thomas. Thank you, Doctor.
Mr. Walker?
STATEMENT OF MICHAEL R. WALKER, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, GENESIS HEALTH VENTURES, INC., KENNETT SQUARE,
PENNSYLVANIA, ON BEHALF OF THE AMERICAN HEALTH CARE ASSOCIATION
Mr. Walker. Thank you. My name is Michael Walker. I am the
chairman and founder and chief executive officer of Genesis
Health Ventures, one of the largest elder care providers in the
Nation, currently filed Chapter 11.
Today, I speak on behalf of the American Health Care
Association. Skilled nursing homes continue to struggle with
the implementation of the Balanced Budget Act of 1997. These
are very tough times for providers.
Mr. Chairman, I would like to thank you and Members of the
Committee. We are most appreciative of the leadership you
provided last year in attempting to rectify the problems
through the Balanced Budget Refinement Act. The rise of skilled
nursing medical utilization during the past decade reflects the
legitimate clinical efforts by providers to meet beneficiary
needs.
As envisioned by Congress in OBRA 87, skilled nursing
facilities have become centers for post-hospital rehabilitation
and restorative services. Today, more than half of the
admissions, nearly 2 million beneficiaries annually, are
Medicare-qualified. At Genesis, nearly 9 out of 10 skilled
nursing home admissions are Medicare-qualified, and we are
returning 50 percent of these individuals back to their
communities.
Earlier this year, the Lewin Group released an analysis of
the effect of BBA and BBRA on Medicare payments to skilled
nursing facilities. The analysis documents that Congress
targeted to reduce Medicare SNF spending by $1 for every $6
forecasted to be spent 1998 through 2004. As managed by HCFA,
aggregate Medicare spending will fall by nearly twice the
original estimate--nearly $1 out of every $3 expended. These
financial challenges raise the most critical question before
this Committee: Who will take care of this most vulnerable
population if we continue to lose the infrastructure of our
skilled nursing facilities at a time when demographics create
an increased demand for care?
The unintended consequences of these changes have been
dramatic on the provider sector. Access to capital has been
destroyed. You cannot get equity or mortgage loan. Eighty
percent of marketed capitalization on Wall Street has been
eliminated in the last 24 months. Twenty-five percent of
freestanding proprietary Medicare-participating facilities have
filed Chapter 11.
In turn, as providers struggle to adjust, beneficiary
services have been put at risk. Three out of four skilled
nursing patient days are purchased by the government, Medicare
or Medicaid. The financial consequences many of us are face
with are beyond our control. The cost of care is rising, labor
cost is rising, people are living longer with impairments that
require professional intervention. Yet patients are going down.
With average Medicaid rates of approximately $4 an hour and
Medicare paying slightly less than $10 an hour for care, our
hands are tied.
Decisions are made by government entities that have
profound effect on patient care. There is no doubt that the
overall underspending has wreaked unwarranted havoc on skilled
nursing providers and patients alike.
AHCA recently submitted to you four specific
recommendations to address Medicare underspending crisis. I
will summarize them:
First, adjust the SNF PPS base to account for the flawed
update factor between 1995 and 1998. Specifically, we have
documented the need for a one-time adjustment of 13.5 percent
to the SNF PPS base to account for the forecast errors between
1995 and 1998.
We have spent the last several months analyzing this data
with Muse and ex-HCFA actuary, King. Translated into per-diem
calculation, the Muse analysis documents that skilled nursing
facility costs, driven primarily by changes in labor and
operating costs, increased by about $25 per day. The SNF market
basket, reduced by the BBA formula of market minus one,
adjusted average rates by $5.30 or a meager 22 cents per hour.
We urge Congress to correct these forecast errors and
compensate for the imprecision of its measurement of cost
changes between the base year 1995 and the beginning of the SNF
PPS cost report periods, July 1998.
Second, delay the implementation of the proposed RUG
Refinement Rules until HCFA can correct deficiencies and
reissue the proposals for public comment.
Third, develop a process for revising the SNF market
basket. The current skilled nursing facility market basket
index is an imprecise measure, and it is seriously flawed. It
is not a specific measure of skilled nursing cost changes, nor
does it accurately predict cost changes in a dynamically
changing health care environment. We support a formal process
by the administration to review the SNF market basket.
And, fourth, Medicare reform should include an updating of
the SNF benefit. We look forward to the opportunity in the
coming Congress to sit down with this Committee to consider
policies to ensure skilled nursing benefits provide the most
effective and efficient service to the Medicare beneficiary. An
$8,000 co-pay for a nursing home stay is woefully inadequate
when a $500 co-pay or deductible exists in a hospital stay.
In closing, Mr. Chairman, there are two key points that I
emphasize:
First, dollars spent on caring for patients on the front
end of admission help to reduce their reliance on
institutionalized care. Admissions and discharge statistics for
the past decade demonstrate that nursing homes are returning a
larger percentage of their patients to the community. Medicare
fueled this transformation. That investment in intense skilled
nursing care facilities serves as a win-win. Beneficiaries
win--they will return to home. government wins--the burden of
cost is reduced. Health care systems win--care is given in the
most appropriate setting.
The BBA and BBRA, as being implemented by HCFA, are
unraveling the win-win and making it a lose-lose. Unless
quickly addressed, the burden of care costs will rise, and
there will be a backlog of patients, inappropriately placed
patients. Medicare and Medicaid costs will explode.
Second, demographic projections indicate that once the baby
boom generation returns, retiring en masse in a few years, the
burgeoning demand for skilled care and related services will
exceed the available supply, and there will be nobody there to
provide it.
Thank you.
[The prepared statement follows:]
Statement of Michael R. Walker, Chairman and Chief Executive Officer,
Genesis Health Ventures, Inc., Kennett Square, Pennsylvania, on behalf
of the American Health Care Association
My name is Michael Walker, and I am the Chairman and CEO of
Genesis Health Ventures, one of the largest eldercare providers
in the United States. Today I speak on behalf of the American
Health Care Association--a federation of affiliated
associations representing over 12,000 non-profit and for-profit
assisted living, nursing facility and subacute care providers,
nationwide.
Before I testify, Mr. Chairman, I'd like to thank you and
members of the committee for recognizing the eldercare funding
crisis caused by the flawed implementation of the 1997 Balanced
Budget Act. We are most appreciative of the leadership you
provided last year in attempting to rectify these problems
through the Balanced Budget Refinement Act.
The skilled nursing home sector continues to struggle with
the implementation of the Balanced Budget Act of 1997. These
are very tough times for providers. Companies, such as Genesis
Health Ventures, that are attempting to pioneer creative
strategies for improving both the efficiencies and
effectiveness of delivery are confronting a hostile policy
environment and threatening economics.
Importance of Medicare:
The rise of skilled nursing facility Medicare utilization
during the past decade reflects legitimate clinical efforts by
providers to meet beneficiary needs. As envisioned by the
Congress in OBRA 87, skilled nursing facilities have become
centers for post-hospital rehabilitation and restorative
services. Meeting the needs of higher acuity, post-hospital
discharge admissions have transformed facility roles and
functions and cost structures. As facilities stepped up to
these challenges, the number of patients qualifying for
Medicare coverage grew. Today, more than half of skilled
nursing admissions--nearly 2 million beneficiaries annually--
are Medicare qualified. In our case at Genesis, nearly nine out
of ten skilled nursing admissions are Medicare qualified.
Medicare Skilled Nursing Facility (SNF) Spending Spiraling
Down:
Earlier this year, the Lewin Group, a leading national
policy research organization, released an analysis of the
effect of the Balanced Budget Act of 1997 (BBA) and the
Balanced Budget Refinement Act of 1999 (BBRA) on Medicare
payments to skilled nursing facilities.\1\ The analysis
documents that Medicare spending projections for SNF patients,
inclusive of the changes enacted last fall by Congress, will be
$15.8 billion less than Congress intended during the seven year
budget period (1998-2004).
---------------------------------------------------------------------------
\1\ Lewin Group, ``Briefing Chartbook on the Effect of the Balanced
Budget Act of 1997 and the Balanced Budget Refinement Act of 1999 on
Medicare Payments to Skilled Nursing Facilities,'' May, 2000.
---------------------------------------------------------------------------
Put in perspective, Congress targeted to reduce Medicare
SNF spending by $1 for every $6 forecast to be spent (1998-
2004). As managed by the Health Care Financing Administration,
aggregate Medicare SNF spending will fall by nearly twice the
original estimate--nearly $1 out of every $3 expended.
Although Congress passed the BBRA to restore vital Medicare
spending, Medicare SNF outlays continue to spiral down. The
BBRA budgeted an increase of SNF spending in FY2000 to $13.3
billion, but the Congressional Budget Office reports SNF care
spending will actually come in $2 billion below estimates ($11
billion in this fiscal year).
Impact:
The unintended consequences of these changes have been
dramatic on the provider sector--access to capital has been
undermined (87% reduction in market capitalization between
January 1998 and March 2000); providers have been thrust into
bankruptcies--one in four (25%) of freestanding, proprietary,
Medicare participating facilities are in financial
restructuring. In turn, as providers struggle to adjust,
beneficiary services have been put at risk.
Rather than the rate of Medicare growth being slowed--as
envisioned by this Committee and by Congress--actual cuts have
affected care giving. For Genesis Health Ventures, the final
SNF PPS rates translated into a reduction of 25% of our
Medicare per diem rates. Medicare revenues account for
approximately 25% of our total revenues. More importantly, the
rate reduction affected the payments for 90% of our inpatient
admissions. Virtually no business could survive with cuts that
drastic.
My company made a commitment to admit all patients
regardless of reduced Medicare payments for services which
averages about $100 a day reduction from our pre-SNF PPS rates.
We are the most recent provider to succumb to bankruptcy.
Bankruptcy is not just financial restructuring. Bankruptcy
directly affects employee morale, recruitment and retention,
care services available and investments toward future care and
services. In reality it is a major distraction from care
giving.
These financial challenges raise the most critical question
before this committee--who will take care of this most
vulnerable population if we continue to lose the infrastructure
of our skilled nursing facilities at a time when demographics
create an increased demand for care? The consequences will be
devastating. Patients will not be able to receive the care they
need--if and when they need it. In no area do we feel this more
strongly than in labor. We dedicate a tremendous amount of time
and resources into recruiting high quality caregivers--the type
of workers that you would trust with a loved one. Yet, in the
current marketplace, they leave their nursing home jobs all too
often for other employment that is not only much more lucrative
but also less demanding.
Three out of four skilled nursing facility patients' care
is paid for by Medicare or Medicaid, both government programs.
The financial consequences many of us are faced with are beyond
our control. Cost of care is rising, costs associated with
labor are rising, people are living longer--with impairments
that require professional intervention--yet payments are going
down. With average Medicaid rates of approximately $4 an hour
and Medicare paying slightly more than $10 an hour for care on
average, our hands are tied. Decisions made by government
entities have a profound effect on patient care.
If SNF PPS were implemented by HCFA to achieve the cost
reductions originally targeted by the Congress, we wouldn't be
here today. The GAO and others have recently testified that
there is no crisis in long term care. This flies in the face of
sound research and reality and is an irresponsible and
questionable claim to make. The OMB's mid-summer review, the
Lewin Group's independent study, 2000 SNF bankruptcies in less
than a year, and concerns expressed by hundreds of thousands of
caregivers on the front lines simply cannot be disregarded.
While providers manage to continue providing the best
possible quality of care to their patients--and while we've
done our best to adjust to unexpected budgetary constrictions--
there is no doubt that the overall under-spending has wreaked
unwarranted havoc on skilled care providers and patients alike.
Recommendations
The American Health Care Association recently submitted to
you four specific recommendations to address the Medicare
under-spending crisis, Mr. Chairman, I will summarize them for
the full subcommittee:
First: Adjust the SNF PPS base to account for the flawed
update factor between 1995 and 1998. Specifically, we have
documented the need for a one-time upward adjustment of 13.5%
to the SNF PPS base to account for forecast errors between 1995
and 1998.
We have spent the last several months analyzing this data
with Muse and Associates, and Guy King, the former chief
actuary at HCFA. The actual rates of cost changes incurred by
Medicare participating skilled nursing facilities are
substantially higher (affirmed by audited cost report, BLS
labor data and independent wage and compensation studies) than
those forecast by the current market basket. The resulting
payment rates are artificially suppressed.
Guy King reviewed real increases in the cost of delivering
skilled care between 1995 and 1998. In his review he compared
closed and audited HCFA cost reports against the SNF market
basket update factor. The HCFA update factor raised Medicare
SNF per diem rates by 8.2% between 1995 and 1998. King's review
of research of audited SNF cost reports filed with HCFA shows
that actual per diem costs incurred by SNFs increased by 27.4%.
In other words, 19.2% should be added to HCFA's 8.2% increase.
This 19.2% should be reduced to account for expectant increases
in case-mix between 1995 -1998. This is how we empirically
arrive at a one-time 13.5% upward adjustment.
Translated into per diem calculations, the Muse/King
analysis documents that skilled nursing facility costs--driven
primarily by changes in labor costs and routine operating
expenses--increased by about $25 per day, per annum. The SNF
Medicare market basket reduced by the BBA formula of market
basket minus 1% adjusted average rates only $5.30 per day, per
annum, or a meager $.22 per hour.
We urge Congress to correct these forecast errors and
compensate for the imprecision of its measurement of cost
changes between base year FY1995 and the beginning of SNF PPS
for cost report periods on or after July 1,1998.
Second: Delay the implementation of proposed RUG Refinement
Rules until HCFA can correct deficiencies and reissue the
proposals for public comment.
The proposed rules should be withdrawn and reissued for
comment only after HCFA has completed its analysis of the
current national PPS data base and completed the recalculation
of the observed weights and distributions based upon current
beneficiary population. It would be an absolute disaster for
participating providers if HCFA proceeds with this rule making
on the basis of interim final rules while it tinkers with its
calculations.
These proposed rules are illustrative of how our hardships
are being exacerbated by the actions of the Health Care
Financing Administration. Congress mandated HCFA to fix the
inadequate payment for non-therapy ancillaries. HCFA responded
with these incomplete and flawed proposals.
An independent analysis just completed by the Lewin Group,
``Evaluation of the Proposed Refinements to RUG-III
Classification System: Comments on the Abt Study and HCFA
Proposed Regulation,'' documents HCFA has not learned from its
past mistakes. The report concludes: ``...2However well-
executed, the Abt study and resulting refinement models are not
sufficiently comprehensive for the design and/or calibration of
a final payment system.'' \2\
---------------------------------------------------------------------------
\2\ Lewin Group, ``Evaluation of the Proposed Refinements to RUG-
III Classification System: Comments on the Abt Study and HCFA Proposed
Regulations, June 7, 2000, p. 4.
---------------------------------------------------------------------------
The litany of methodological flaws parallel those observed
in the initial rule-making process.
Third: Develop a process for revising the SNF market
basket.
The current skilled nursing facility market basket index is
an imprecise measure; it is seriously flawed. It is not a
specific measure of skilled nursing cost changes, nor is it an
accurate predictor of cost changes in a dynamically changing
care environment. The market basket model used by HCFA offers a
limited snapshot of cost changes, year-to-year, based upon
historic patterns of spending across a broad array of long-term
care setting. Over time, the inaccuracies of the market basket
are amplified (compound effect), and the rate structures erode.
The actual rates of cost changes incurred by Medicare
participating skilled nursing facilities are substantially
higher than those forecast by the current market basket.
We strongly support a formal process by the Administration
to review the SNF market basket to ensure it keeps pace with
and fully accounts for the actual increases in costs incurred
and reflects changes that will affect costs in the delivery of
skilled nursing care.
Fourth: Medicare reforms should include an updating of the
SNF benefit.
We look forward to the opportunity in the coming Congress
to sit down with this committee to consider policies to ensure
the skilled nursing benefit provides the most effective and
efficient service to the Medicare beneficiary. We believe
Congress must act to protect beneficiaries from excessive co-
payments, must act to eliminate outdated controls on access to
the benefit and must act to remove barriers to care management.
Today, only 2% of beneficiaries who enter a skilled nursing
facility actually receive the 100 days of coverage promised by
Medicare. To get the 100 days of SNF coverage a beneficiary
must pay nearly $8,000 out-of-pocket (approximately a day after
the 20th day).
Summary
In closing, Mr. Chairman, there are two key points that I
emphasize.
First, dollars spent on caring for patients on the front-
end help to reduce their reliance on institutional care.
Admissions and discharge statistics for the past decade
demonstrate that nursing homes are returning a larger
percentage of their patients to the community. Medicare fueled
this transformation. That investment in intense skilled nursing
facility services is a win-win. Beneficiaries win--they are
returned to their home setting; government wins--the burden of
care costs are reduced, and the health system wins--care is
given in the most appropriate settings. The BBA and BBRA as
being implemented by HCFA, are unraveling that win-win, making
it a lose-lose. Unless quickly addressed, the burden of care
costs will rise, there will be a backlog of patients
inappropriately placed, and Medicaid and Medicare costs will
explode.
Second, demographic projections indicate that once the
baby-boom generation begins retiring en masse--in just a few
years--the burgeoning demand for skilled nursing care and
related health services will exceed the available supply.
Unless we as a nation are willing to assume the full burden of
caring for our grandparents, parents, and siblings, we need to
fix the eldercare funding crisis immediately. If we don't,
quality long-term care will not be there when you and your
loved ones need it--no matter who pays for it. The federal
government should provide a favorable environment encouraging
providers to invest now to meet future needs--not wait until
the level of problems threatens to overtake our ability to
solve them.
Thank you very much, Mr. Chairman, for this opportunity to
express our deep concerns and frustrations with the current PPS
system and its flawed implementation by the Health Care
Financing Administration.
Chairman Thomas. Thank you very much, Mr. Walker.
Ms. Sutherland?
STATEMENT OF JUDITH G. SUTHERLAND, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, VISITING NURSE CORPORATION OF COLORADO,
DENVER, COLORADO, AND, CHAIR, BOARD OF DIRECTORS, VISITING
NURSE ASSOCIATIONS OF AMERICA
Ms. Sutherland. Mr. Chairman and Members of the
Subcommittee, as chair of the Visiting Nurse Associations of
America board of directors, I would very much like to thank you
for allowing us to present our views. I am also the chief
executive officer of the Visiting Nurse Corp. of Colorado,
which is the largest home care agency in the State.
In 2 months, home health care will be reimbursed by a
Prospective Pay System. We believe in this system. We believe
that it will solve the current crisis in home health care. But
we also believe that two actions must be taken. The first is to
waive the BBA's budget neutrality restriction on PPS
expenditures, so that the base-per-episode payment can be
increased. And, second, we believe that the 15-percent cut must
be repealed.
We believe in these actions because PPS, while excellent,
cannot succeed without sufficiently reimbursing providers for
the cost of care and also removing the threat of the 15-percent
cut.
Mr. Chairman, under your leadership, this Subcommittee has
taken the lead during the past 2 years by developing policies
that reward cost efficiency. Under your guidance and watchful
eye, Congress passed such legislation in 1998 and in 1999. VNAA
has been grateful for your efforts. As the chief executive
officer of an agency, I, too, have. We urge you to continue to
go down this path.
We realize that there is hesitancy on the part of the
Health Subcommittee to place significant trust in the home
health industry because of the overutilization that occurred in
some parts of the country prior to BBA. It has been said, and
we have heard it today, that some favor delaying the cut, so
that it can be implemented in the future if the utilization of
the benefit rapidly increases after PPS.
VNAA opposes a delay in this. And primarily that is because
it is another ``punish everyone for the bad behavior of some''
approach that VNAs and other cost-efficient agencies were
subject to under the IPS. We believe that there are sufficient
safety measures under PPS that will identify who is playing by
the rules and who is not. Medical review will target areas for
potential abuse and provide appropriate responses.
On behalf of home health providers who want to provide
cost-efficient and compassionate care to Medicare
beneficiaries, VNAA asks you to please repeal the 15-percent
cut. It, in fact, is no longer needed to achieve the BBA
savings, which was its only purpose. The CBO's March 2000
projection of home health savings is more than four times its
original projection. Savings will now equal $69 billion, rather
than the original projection of $16.1 billion. No other sector
of health care has been as negatively impacted by the BBA as
home health care. We represent 5-percent of Medicare spending,
but we account for 60 percent of combined savings from home
health, hospitals and skilled nursing facilities.
Since fiscal year 1997, program expenditures decreased 48
percent. From calendar year 1997 to 1999, the number of home
health beneficiaries served by home care dropped by nearly 1
million or 26 percent. According to several reports, patients
are currently spending more time in hospitals and nursing homes
than they need to because access to home health care has,
indeed, become a nationwide problem.
In Colorado, one-third of the agencies have closed, and
their staffs, in large part, have transferred to other
professions because home health salaries and benefits are no
longer competitive. This is directly due to the budget cuts we
have had to make under the IPS. We no longer have the staff to
accept all hospital and physician referrals. Repeal of the 15-
percent would not add a dime to Medicare Home Health
expenditures, but would help CBO's error.
The 48-percent drop in Medicare Home Health expenditures
during the last 2 years also forced HCFA to develop a PPS
system under serious budget constraints. As a result,
reimbursement is insufficient for many case-mix categories.
VNAA's analysis of the PPS proposed rule, using a sample of
VNA's recent data, reveals that reimbursement for 9 of 10 of
our most prevalent case-mix categories will be less than the
cost of care.
To ensure sufficient reimbursement rates under PPS, we
recommend a simple and direct method for appropriately linking
reimbursement to the cost of care. We recommend waiving the BBA
budget neutrality factor, which would allow the base 60-day-
per-episode rate to be raised by a certain percentage.
Another way to more accurately link reimbursement to cost
of care would be to improve the PPS outlier system. An example
on HCFA's website for constructing an outlier payment
demonstrates the disparity between cost of care and
reimbursement, even with the outlier payment. To improve the
outlier system, we recommend that you authorize $500 million in
each of the next 5 years for outlier payments.
Another change to BBA that VNAA believes is essential for
PPS to succeed is to remove medical supplies from the per-
episode payments and create a budget-neutral fee schedule for
only the supplies that are actually used by patients. The BBA's
requirement to bundle the average cost of Medical supplies will
underpay or overpay agencies, depending on the needs of their
patients.
Thank you for allowing us the opportunity to testify.
[The prepared statement follows:]
Statement of Judith G. Sutherland, President, and Chief Executive
Officer, Visiting Nurse Corporation of Colorado, Denver, Colorado, and,
Chair, Board of Directors, Visiting Nurse Associations of America
I. Introduction
Mr. Chairman and Members of the Subcommittee, thank you for
the opportunity to testify on additional Medicare refinements
to the Balanced Budget Act of 1997 (BBA97). My name is Judy
Sutherland, and I am President and CEO of the Visiting Nurse
Corporation of Colorado, which is the largest home care agency
in the state of Colorado with 870 employees making 400,000 home
care visits annually. I am also Chair of the Board of Directors
of the Visiting Nurse Associations of America (VNAA), on whose
behalf that I present these remarks today. VNAA is the national
membership association for Visiting Nurse Agencies (VNAs),
which are non-profit, charitable and community-based home
health agencies. Having created home health care over 100 years
ago, VNAs have a long history of delivering cost-effective and
compassionate care to people in their communities.
VNAA appreciates the opportunity to present our viewpoints
during the first year of this new millennium, which we believe
represents a turning point for the Medicare home health
benefit. In two months, home health agencies will be reimbursed
by a prospective payment system (PPS) under Medicare, which
creates a reimbursement framework that is based on significant
research and tested experience from two HCFA PPS Demonstration
Projects and HCFA's Case-Mix Research Project. HCFA has
constructed a well thought-out PPS design that uses the best
data available to ensure that Medicare home health
beneficiaries receive appropriate, medically-necessary care in
the most cost-effective manner.
The challenges presented by PPS in the year 2000 are
parallel to the challenges that faced VNAs during the beginning
of the 20th century. In 1900, VNAs were quietly revolutionizing
health care in this country by providing medical and preventive
services to those people who did not have access to such care.
Visiting nurses brought health care to people's homes and
community clinics to prevent unnecessary hospitalization, which
was considered the health care of last resort because of
hospitals' high costs. It is no different today. Compared to
the average hospital inpatient operating cost per day of
$1038*, a patient could receive health care at home at an
average cost of $66.50 per-visit** or $133 per day for patients
requiring two visits per day. Two visits per day is typically
the maximum number of visits for newly discharged patients,
which would equal 13% of the daily hospital inpatient operating
cost. Following the first few days of home health admission,
the number of visits per day and per week decrease as families
learn patient care skills.
Mr. Chairman and Subcommittee Members, Congress has the
opportunity now to make the Medicare home health benefit the
cornerstone of a more cost-efficient, more compassionate
Medicare program. The Medicare population is estimated to
double by the year 2015, which emphasizes the need to begin re-
prioritizing Medicare expenditures today to support innovative
models of health care in the most cost-effective setting. There
will be a stronger need to rely on family and community
support. We believe that the public health model adopted by
VNAs over 100 years ago will be the most cost-effective model
for the future Medicare program. A February 17, 1999,
publication of the Journal of the American Medical Association
(JAMA) reported the findings of a study that showed that home
health care for newly discharged, high-risk seniors saved
Medicare an average $3,000 per patient on avoided hospital re-
admissions.
Source: American Hospital Association's FY 1997
data
Source: VNAA's FY 1997 data
II. Current State of Home Health Care
The Health Subcommittee's interest in providing additional
refinements to the BBA97 will begin to lay the foundation for a
stronger Medicare program. Home health PPS must begin on solid
footing to achieve Congress' goals of cost-efficiency and
appropriate patient care. Unfortunately, PPS is beginning when
the home health industry is in a period of turbulence.
HCFA's recent data reveals a disturbing picture of the
current state of the Medicare home health program (please see
Table 1, which is attached).
Since fiscal year 1997, program expenditures
decreased 48%, from $18.3 billion in FY 1997 to $9.5 billion in
FY 1999.
From calendar year 1997 to 1999, the number of
home health beneficiaries served dropped by nearly one million,
from 3.5 million to 2.6 million, or by 26%.
(Source: Preliminary 1999 HCFA/HCIS data.)
VNAA urges you to turn around the Medicare home health
benefit by 180 degrees to prevent it from continuing its rapid
downward spiral. If Medicare expenditures for home health care
continue to decrease at the rate of the last two years, there
will be no home health benefit in 2015.
The drop in expenditures has directly affected beneficiary
access to care. According to several reports, patients are
currently spending more time in hospitals and nursing homes
than they need to because access to home health care has become
a nationwide problem.
Researchers at George Washington University
surveyed hospital discharge planners regarding their ability to
find home health care for patients. According to the GWU, 68
percent of the discharge planners reported that it is becoming
increasingly difficult to obtain home health services for
Medicare beneficiaries.
In Colorado, one-third of the home health agencies have
closed. This has had a tremendous effect on access to home
health care in Colorado because my agency and the other
existing agencies do not have the available clinical staff to
accept the increased number of hospital referrals. This is due
to a nationwide shortage of home health care personnel. The BBA
Interim Payment System (IPS) has forced VNAs to cut their
budgets by an average 25%. As a result, we are unable to offer
competitive wages and benefits to attract qualified staff.
However, demand is increasing for home care. The Bureau of
Labor Statistics forecasts an 82 percent increase in the demand
for key home health personnel for the period 1998 to 2002.
We do not understand why the United States General
Accounting Office (GAO) maintains that access to home health
care is generally not a problem. Their findings are in direct
contrast to HCFA's data showing a 25% reduction in beneficiary
use of the home health benefit over two years and our day-to-
day experience in the field. We've offered to the GAO to
discuss their research with them to find out why there is such
a discrepancy.
We realize there is hesitancy on the part of the Health
Subcommittee to place significant trust in the home health
industry because of the over-utilization and other abusive
practices that occurred in some parts of the country prior to
BBA97. It has been said that some favor delaying the 15% cut so
that it can be implemented in the future if utilization of the
benefit rapidly increases following the implementation of PPS.
VNAA opposes a delay for such purposes because it is another
``punish everyone for the bad behavior of some'' approach that
VNAs and other cost-efficient agencies were subject to under
the Interim Payment System (IPS). There's no other way to say
it: It's not fair. There has to be a better way to achieve the
same purpose. The BBA97 has more than corrected the fraud and
abuse that had previously occurred. The GAO confirmed that the
areas in the country that had the highest pre-BBA97 utilization
are the areas with the highest number of home health agency
closures.
III. Recommendations
Mr. Chairman, under your leadership, this subcommittee has
taken the lead during the past two years by developing policies
that reward cost-efficiency and promote ethical behavior. Under
your guidance and watchful eye, Congress passed such
legislation in 1998 and 1999. VNAA has been grateful for your
efforts. We urge you to continue to go down this path. PPS
provides an excellent start. HCFA's medical review of home
health care will be focused on potential areas of abuse with
appropriate responses. Medical review using OASIS and normative
standards data will identify who is playing by the system and
who is not. VNAA would like to work with you to address any
future problem areas through new legislation. On behalf of home
health providers who want to provide cost-efficient and
compassionate care to Medicare beneficiaries, VNAA asks you to
please REPEAL THE 15% CUT.
In addition, and of equal importance, we urge you to
authorize immediate new expenditures to ensure the successful
transition to prospective payment. HCFA has developed an
outstanding system. VNAA believes that only a few systemic
changes are necessary, which we will discuss later in our
testimony. The only real obstacle for PPS is the constraint of
the BBA that ties PPS expenditures to IPS expenditures (if IPS
were to remain in effect). Because expenditures for home health
care under IPS dropped 48% from FY 1997 to 1999, HCFA was
forced to develop a PPS under serious budget constraints. Our
analysis using a sample of VNAs' 1999-2000 data found that the
cost of care for nine out of 10 of our most prevalent case-mix
categories exceed reimbursement under the PPS proposed rule.
The same data is currently being analyzed using the final rule
reimbursement rates, which we would be pleased to share with
the subcommittee. We are concerned that if Congress does not
authorize additional expenditures for PPS, access to care will
deteriorate.
VNAA was amazed at GAO Director William Scanlon's following
comment during last week's hearing of the Health and
Environment Subcommittee: ``In our [GAO] view, the new home
health PPS rates overall are likely to provide agencies a
comfortable cushion to deliver necessary services.'' Again, the
GAO's findings are in direct contrast to our data and HCFA's
estimates for outlier payments (see ``Improve the PPS Outlier
System'' below).
The five national home health associations--VNAA, the
American Association for Homecare, the American Federation of
Home Care Providers, the Home Care Association of America, and
the National Association for Home Care--jointly recommend that
the subcommittee take the following legislative actions this
year.
1. Repeal the 15 percent cut
The 15% cut scheduled for October 1, 2001, is no longer
needed to achieve BBA97 Medicare home health savings, which was
its only purpose. The Congressional Budget Office's March 2000
projection of such savings is more than four times its original
projection (from $16.1 billion to $69 billion).
No other sector of health care has been as negatively
impacted by the BBA 97 as Medicare home health services (see
the attached Table 1 and Charts 1 and 2). The Congressional
Budget Office (CBO) recently reported that the ``larger than
anticipated reduction in the use of home health services'' was
the primary reason total Medicare spending fell 1 percent in
fiscal year 1999. Likewise, according to the American Hospital
Association's Year 2000 Lewin Study, BBA97 has reduced
hospital-based home health services by 30.5%--the largest
reduction of any hospital service affected by the BBA 97.
Repeal of the 15% cut would not add a dime to Medicare home
health expenditures, but would help correct CBO's error and
partially restore congressional intent. We can assure you that
home health care would generate more savings to Medicare than
would a 15% cut if VNAs and other home health providers were
allowed to provide sufficient services to patients.
2. Improve the PPS outlier system.
A direct method for more appropriately linking
reimbursement to cost of care would be improvement of the PPS
outlier system. An example on HCFA's website for constructing
an outlier payment demonstrates the disparity between HCFA's
imputed cost for a 60-day episode of care (for case-mix
category weighted 1.9532)--$6534.93--and the total payment for
the episode (including the outlier supplement payment)--
$4214.65. In this example, reimbursement with the outlier
payment is 64% of the total wage-adjusted imputed cost of care
of the episode based on HCFA data.
We recommend that the subcommittee authorize $500 million
in each of the next five years to be used as outlier payments
under the prospective payment system for services to the most
medically-complex and costly patients. This funding level for
outlier payments would be equivalent to 10% of the total
payments projected or estimated to be made under the PPS each
year. This would double the current BBA97 5% allocation
requirement for outliers. Under this provision, the added
portion of the outlier pool would not be subject to the budget
neutrality factor and would not reduce the base episode
payments.
3. Create a fee-schedule for non-routine medical supplies.
Our recommendation is to remove medical supplies from the
per-episode payments under the prospective payment system and
create a budget-neutral fee schedule for only the supplies that
are actually used by patients. Unbundling the average cost of
the non-routine medical supplies from the base episode payment
rate is essential because some agencies' patient populations
have greater or lesser than average medical supply needs. The
bundling of the average cost of non-routine medical supplies
would underpay or overpay agencies depending on the needs of
their patients.
In addition, Medicare beneficiaries receiving home health
agency (HHA) services for a specific illness or injury may have
a preexisting need for medical supplies for a non-related
chronic illness. In these cases, the beneficiary would have an
established relationship with an HME provider. Under the PPS
final rule, HHAs would be responsible for the supplies
unrelated to the reason for home health admission. Therefore,
an abrupt switch from the HME supplier to the HHA may leave
beneficiaries vulnerable if there is a gap in services or
confusion about a beneficiary's medical supply needs.
4. The five national associations representing home health
care also recommend that you instruct HCFA to
Authorize emergency payments during the first six months of
PPS, which would have minimal budget impact. We support the
provision in S. 2835 (the ``Grassley-Feingold'' bill) that
would provide one-time advance payments to providers during the
transition from IPS to PPS to account for cash-flow crises as a
result of the elimination of the Periodic Interim Payment (PIP)
system. Payments would equal the average total Medicare costs
incurred by an eligible agency in the most recent three-month
period reported on the agency's most recently-settled cost
report. Payments would be available for six months and be
repaid within twelve months.
PIP, which is primarily provided to non-profit, community-
based home health providers, will be discontinued as of October
1, 2000. If PPS delays a substantial portion of payment until
after termination of a patient episode, providers will have
significant cash flow problems. Many agencies are unable to
secure lines of credit or other loans because of the effect of
the IPS on cash reserves.
In addition, VNAA urges you to instruct HCFA to change the
split payment ratio to 80/20 from the 60/40 in the final rule.
The vast majority of our patient care is provided in the first
30 days following patient admission. Reimbursement of 60% of
the episode payment three weeks following the start-of-care
will present significant cash flow problems for VNAs. A change
in the split-payment ratio would be budget neutral.
Reimburse HHAs for OASIS-related costs
Under the PPS final rule, agencies will be reimbursed $4.32
per episode for ongoing OASIS adjustment costs and a one-time
implementation cost for OASIS form changes of $5.50 per first
year episodes.
VNAA surveyed our members and asked the following question,
``What is your best estimate of the average costs incurred
during a 60-day episode of patient care by performing the OASIS
survey (i.e. total costs for all assessments during the 60-day
episode--start-of-care, discharge, and any other OASIS
assessment during that timeframe)? Please estimate only the
additional costs of doing OASIS vs. your previous patient
assessment.''
The results from our survey indicated that VNAs' average
per 60-day episode cost for performing the OASIS assessment is
$67, primarily due to labor costs that are not accounted for by
HCFA. Based on this data, we believe that a significant amount
of the OASIS costs will not be reimbursed under PPS. VNAA
believes that OASIS data will provide invaluable patient
outcomes and normative standards data. However, OASIS is overly
burdensome and costly. We recommend additional per-episode
reimbursement for OASIS to account for labor costs or
instruction to HCFA to reduce the number of assessment
questions to the 20 used for case-mix under PPS. We also
recommend that the assessment be limited to Medicare and
Medicaid patients only.
Clarify in the Medicare statute a uniform, reasonable, and up-
to-date definition of a Medicare home health agency branch
office.
This definition must focus on an agency's ability to
provide quality care and positive patient outcomes rather than
the current definition that imposes arbitrary and ineffective
time and/or distance requirements between the parent office and
the branch office. Medicare home health policy regarding branch
offices must recognize that technological advances (e.g.,
communication tools that allow almost instantaneous information
exchange) provide efficient and effective ways to ``distance
manage'' branch offices and workstations.
Increase payments for home health services in rural areas
by 10 percent
A 10% add-on to the episodic base payment for rural home
health agencies would help address the 12-15% higher costs of
delivering care in these areas.
IV. Conclusion
Thank you again for the opportunity to present our views.
We appreciate the fact that you are working with a finite set
of funds and, therefore, have difficult choices to make. VNAA
asks you to keep in mind the issues that we have raised in our
testimony. Your support at this important time of transition to
PPS is essential. Home health care has the potential to save
the Medicare program millions (if not billions) of dollars. It
should be a primary component of Medicare reform efforts to
extend the life of the trust fund. Most importantly, home
health care is the preferred choice of individuals with chronic
illnesses or disabilities. It enables Americans to live
independently and remain a part of their communities. I would
be pleased to answer any questions about our testimony. We look
forward to working with you this year and years to come.
Table 1. Medicare Program Benefits, Fiscal Years 1997, 1998, 1999
----------------------------------------------------------------------------------------------------------------
Benefit Type FY97 FY98 Amount (billions) FY99
----------------------------------------------------------------------------------------------------------------
Managed care 25.0 31.9 37.4
Inpatient hospitals 88.3 87.0 85.3
Skilled nursing facilities 12.6 13.6 12.4
Home health 11 18.3 14.0 9.5
Hospice 2.1 2.1 2.5
Physicians 32.0 32.3 33.5
Outpatient hospitals 10.7 10.5 9.7
Durable medical equipment 4.1 4.1 4.2
Other 14.0 14.6 13.8
TOTAL MEDICARE 207.1 210.1 208.3
Percentage Change by FY97-98 FY98-99 FY97-99
Benefit Type
Managed care +27.6% +17.2% +49.6%
Inpatient hospitals -1.5 -2.0 -3.4
Skilled nursing facilities +7.9 -8.8 -1.6
Home health -23.9 -32.1 -48.1
Hospice 0.0 +19.0 +19.0
Physicians +1.1 +3.7 +4.8
Outpatient hospitals -1.9 -7.6 -9.3
Durable medical equipment 0.0 +2.4 +2.4
Other +4.0 -5.5 -1.7
TOTAL MEDICARE +1.4 -0.9 +0.6
----------------------------------------------------------------------------------------------------------------
AASource: HCFA, Office of the Actuary unpublished estimates for the President's fiscal year 2001 budget.
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Chairman Thomas. Thank you, Ms. Sutherland.
And before I turn it over to Mr. Renaudin, I want to let
the gentleman from Louisiana chair because I know when I am
out-classed. I have get to get two Louisianans going after each
other, rather than someone from California in the middle of
that.
And I have read your testimony. And it seems to me that
probably the most appropriate remark I could make--I apologize.
I have got to go to a meeting the Speaker just called me to--is
that this needs to be a joint effort. And probably the best way
to make it a joint effort is that I would invite all of you to
bring the numbers, and we will bring the decimal points.
Ms. Sutherland. Fair enough.
Mr. McCrery [presiding]. Please proceed.
STATEMENT OF GEORGE RENAUDIN, SENIOR VICE PRESIDENT OF
ADMINISTRATION, OCHSNER HEALTH PLAN, METAIRIE, LOUISIANA, ON
BEHALF OF THE AMERICAN ASSOCIATION OF HEALTH PLANS
Mr. Renaudin. Thank you. Mr. Chairman and Members of the
Subcommittee, thank you for the opportunity to testify. I am
George Renaudin, a senior vice president with Ochsner Health
Plan. I am testifying today on behalf of the American
Association of Health Plans.
The Medicare Plus Choice program offers important
advantages to both Medicare beneficiaries and the government.
Fifteen years ago the government made a deal with Medicare
beneficiaries. Medicare HMOs would achieve cost savings and
pass along those savings to beneficiaries in the form of
increased benefits and reduced out-of-pocket costs in exchange
for the beneficiary's enrollment in an HMO. It is an important
point that needs to be considered.
The incredible success of the Medicare HMO program led
Congress to establish the Medicare Plus Choice program in 1997
to continue increasing the choices available to Medicare
beneficiaries. Unfortunately, the Medicare Plus Choice program
has not met this promise and has, in fact, led to fewer choices
for many beneficiaries.
There are a few major problems that have led us to this
detrimental result:
First and foremost, the Medicare Plus Choice program is
significantly underfunded.
Second, the Health Care Finance Administration has imposed,
many times, excessive regulatory burdens on health plans
participating in the program. Much of the funding problem has
been caused by the unintended consequences of the Medicare Plus
Choice payment formula. To demonstrate the issue, please
consider the following facts:
The total premiums collected by health plans participating
in the Federal employee health benefits program for the average
enrollee has increased 29.1 from 1997 through the end of 2000.
During the same period, the government payments to Medicare
Plus Choice plans has increased an average rate of only 8.6
percent.
In January 2001, as you have heard from Mr. Berenson, more
than 900,000 beneficiaries will be forced to change health
plans and return to the Medicare fee-for-service system. This
number is greater than the number who were affected in the
previous 2 years combined. Additionally, many other
beneficiaries, including those in my plan, have lost important
benefits and are paying much higher out-of-pocket costs, even
though they are able to keep, in some instances, the Medicare
Plus Choice plan.
To understand why beneficiaries are losing choices of
benefits, please consider that Ochsner's expected medical costs
in 2001 will exceed our expected payment by 11 percent in the
areas from which we are withdrawing. No health plan can survive
while paying 11 percent more in health care benefits than it
receives in payments. Keep in mind this 11-percent loss is
before any administrative costs at all are incurred.
In addition to the difficulties resulting from the
program's inadequate funding and excessive regulations, you
should also know about an additional problem in some parts of
the country and in several parishes back home. Just so that you
know, in Louisiana we call counties parishes.
The problem facing some plans is the monopolistic behavior
of a few providers who dictate payment rates to health plans
that are at times higher than they would otherwise receive from
participation in the Medicare fee-for-service program. The
withdrawal decision is particularly difficult for a physician
in hospital-owned health plans like mine. We did not take this
action without much debate and discussion. We know and we
regret that the disruption is particularly difficult for low-
income Medicare beneficiaries whose health security will be
severely compromised if this program is not saved quickly.
We realize that these disruptions are painful for our
members and made every attempt to avoid causing such
disruptions; changing benefit plans, trying to recontract with
providers, cutting administrative costs, all of those factors
were considered. Despite this, and with our regret, you should
note that this program has, and does, provide unprecedented
value to Medicare beneficiaries, and we are committed to
working with you to save this program.
We believe that approximately $15 billion in direct
payments to the Medicare Plus Choice program is needed over the
next 5 years to stabilize this program on a long-term basis. A
commitment of this magnitude is needed to assure that the
Medicare Plus Choice program fulfills its promise of preserving
and expanding health care choices for all Medicare
beneficiaries, as promised when the BBA was enacted.
We also urge you to combine this additional funding with
meaningful regulatory reforms so beneficiaries are receiving
quality and value in the Medicare Plus Choice plans. As a
former regulator, I believe it is critically important to
assure that the benefits of regulations outweigh the costs of
those same regulations. Recognizing that more than 6 million
Medicare beneficiaries are relying on the Medicare Plus Choice
program to meet their health care needs, we believe this is one
of the most pressing issues facing Congress.
We look very much forward to working with the Subcommittee
to address this seriously important issue in the remaining days
of the 2000 legislative session.
Thank you very much.
[The prepared statement follows:]
Statement of George Renaudin, Senior Vice President of Administration,
Ochsner Health Plan, Metairie, Louisiana, on behalf of the American
Association of Health Plans
Mr. Chairman and members of the subcommittee, thank you for
the opportunity to testify on the impact the Balanced Budget
Act of 1997 (BBA) has had on Medicare+Choice organizations and
the beneficiaries they serve. I am George Renaudin, Senior Vice
President of Administration for Ochsner Health Plan, which is
the largest HMO in Louisiana and the fifth largest provider-
owned HMO in the nation. I oversee administrative functions at
Ochsner Health Plan, including the management of our
Medicare+Choice plan, Total Health 65, which currently serves
36,572 Medicare beneficiaries. In January 2001, due to the
problems I will discuss in my testimony, we will be forced to
withdraw from six parishes in Louisiana and terminate coverage
for 5,982 beneficiaries.
I am testifying today on behalf of the American Association
of Health Plans (AAHP), which represents more than 1,000 health
maintenance organizations (HMOs), preferred provider
organizations (PPOs), and other similar health plans that
provide health care coverage to more than 140 million
Americans.
AAHP's membership includes Medicare+Choice organizations
that collectively serve more than 75 percent of those
beneficiaries who have chosen Medicare managed care over the
fee-for-service program. AAHP member plans have strongly
supported efforts to modernize Medicare and give beneficiaries
the same health care choices that are available to working
Americans. AAHP member plans have had a longstanding commitment
to Medicare and to the mission of providing high quality, cost
effective services to beneficiaries.
To fully understand the impact the BBA has had on
Medicare+Choice plans and enrollees, I believe we should begin
by briefly reviewing the Medicare HMO program that existed
before Congress established the Medicare+Choice program in
1997. Under the original Medicare HMO program, the government
paid health plans a set amount per month to cover the health
benefits of each beneficiary. This amount was based on 95
percent of the costs the government paid for beneficiaries
served by the Medicare fee-for-service system.
This Medicare HMO program offered important advantages to
both the government and Medicare beneficiaries. The government
paid less for beneficiaries who enrolled in Medicare HMOs; at
the same time, beneficiaries were well-served by a system that
allowed Medicare HMOs to provide high quality care while
providing additional benefits--beyond those covered by the fee-
for-service program--often at no additional cost to
beneficiaries. By delivering care in a more efficient way,
Medicare HMOs achieved cost savings that were passed along to
beneficiaries in the form of increased benefits and reduced
out-of-pocket costs. As a result, beneficiaries in Medicare
HMOs did not have to purchase costly Medigap coverage to
protect themselves from health care expenses not covered by the
old fee-for-service program.
The success of the Medicare HMO program was evidenced by
the fact that beneficiaries signed up for Medicare HMO coverage
in large numbers. From December 1993 through December 1997,
enrollment in Medicare HMOs increased at an average annual rate
of 30 percent. In states such as Louisiana, Pennsylvania, Ohio,
and Texas, enrollment in Medicare HMOs increased even more
rapidly. In Louisiana, enrollment in Medicare HMOs increased
from 2,344 in 1994 to 80,756 in 1997, reflecting a 33-fold
increase. In December 1997, shortly after the enactment of the
BBA, Medicare HMO enrollment stood at 5.2 million, accounting
for 14 percent of the total Medicare population--up from just
1.3 million enrollees and 3 percent of the Medicare population
in December 1990.
Beneficiaries valued this important health care choice
under the original Medicare HMO program--and still value it
today--because Medicare HMOs, when adequately funded, are able
to provide a more comprehensive package of benefits and lower
out-of-pocket costs than the old Medicare fee-for-service
system. This is particularly important to low-income
beneficiaries. For many seniors and persons with disabilities
who live on fixed incomes, having access to a Medicare HMO
means that they can spend their limited resources on groceries
and other daily essentials--instead of ``going without.''
Beneficiaries also like Medicare HMOs because they provide
coordinated care and place a strong emphasis on preventive
services that help them to stay healthy and avoid preventable
diseases. According to a survey conducted by HCFA, when
Medicare managed care enrollees were asked to rate their plans
on a scale of 1 to 10 (with 10 being the highest score), 50
percent assigned a ``10'' rating to their plan and another 34
percent assigned an ``8'' or a ``9'' rating to their plan.
The success of the Medicare HMO program inspired Congress
to establish the Medicare+Choice program in 1997. The new
program was intended to further expand beneficiaries' health
care choices by establishing an even wider range of health plan
options and by making such options available in areas where
Medicare HMOs were not yet available. Three years later,
however, the Medicare+Choice program has not fulfilled its
promise of expanding health care choices for Medicare
beneficiaries. Instead, a large number of beneficiaries have
lost their Medicare+Choice plans or experienced an increase in
out-of-pocket costs or a reduction in benefits.
Two major problems are responsible for this outcome: (1)
the Medicare+Choice program is significantly underfunded; and
(2) the Health Care Financing Administration (HCFA) has imposed
excessive regulatory burdens on health plans participating in
the program. The funding problem has been caused by the
unintended consequences of the Medicare+Choice payment formula
that was established by the BBA, as well as the
Administration's decision to implement risk adjustment of
Medicare+Choice payments on a non-budget neutral basis. Under
this formula, the vast majority of health plans, including
Ochsner Health Plan, have been receiving annual payment updates
of only 2 percent in recent years--while the cost of caring for
Medicare beneficiaries has been increasing at a much higher
rate.
To underscore the inadequacy of the government's payments
to Medicare+Choice plans, I offer three examples for the
subcommittee's consideration:
1. Total premiums collected by health plans (from OPM and
from enrollees) participating in the Federal Employees Health
Benefits Program (FEHBP) have increased, for the average
beneficiary, by a total of 29.1 percent between January 1997
and December 2000. During this same time period, government
payments to Medicare+Choice plans have increased, for the
average beneficiary, by a total of only 8.6 percent. In 2001,
government payments to Medicare+Choice plans will again
generally increase by just 2 percent--making this the third
time in four years that the annual update was 2 percent. In
Louisiana, our medical costs have increased at a rate of 5 to 7
percent per year, while we have received than a two percent
increase in payment per year because of the impact of the risk
adjuster and because Medicare+Choice plans paid the entire cost
of the Medicare Beneficiary Information Campaign for the first
three years of the program. We have had to both withdraw from
service areas and increase beneficiary out-of-pocket costs in
order to sustain participation in the program.
2. In many geographic areas where large numbers of Medicare
beneficiaries are enrolled in Medicare+Choice plans, government
payments for Medicare fee-for-service beneficiaries will exceed
government payments to plans on behalf of Medicare+Choice
beneficiaries by $1,000 or more per beneficiary in 2004. These
areas include--to name just a few--my home town of New Orleans
(which currently has 26,532 Medicare+Choice enrollees); Los
Angeles (314,000 Medicare+Choice enrollees); New York (174,000
Medicare+Choice enrollees); Miami (134,000 Medicare+Choice
enrollees); and Philadelphia (78,000 Medicare+Choice
enrollees). This payment differential has challenged the
ability of health plans to offer beneficiaries the quality
coverage they deserve and, additionally, to maintain provider
networks and expand into new geographic areas.
3. By establishing a blend of local and national rates, the
BBA intended to reduce the variation in Medicare+Choice
payments among counties. As noted above, however, the blend has
been funded in only one year and government payments to
Medicare+Choice plans continue to vary among geographic areas,
including neighboring geographic areas. For example, the
monthly actual payment from the government is $451 in
Terrebonne parish, Louisiana and $574 in Orleans parish,
Louisiana--a difference of $123 even though these areas are
just a 40-minute drive apart.
These examples raise serious concerns about the adequacy of
Medicare+Choice payments. However, to fully appreciate the
crisis in the Medicare+Choice program, it is important for
Congress to examine the impact it has had on Medicare
beneficiaries.
In January 1999, 407,000 beneficiaries were forced to
change health plans or return to the Medicare fee-for-service
system because many health plans--faced with inadequate
government payments and excessively burdensome regulatory
requirements--were forced to curtail their participation in the
Medicare+Choice program. In January 2000, 327,000 experienced
similar disruptions in their health coverage. Additionally,
many other beneficiaries have lost important benefits and are
paying higher out-of-pocket costs even though they have been
able to keep their Medicare+Choice plans. To understand why
beneficiaries are losing choices and benefits, please consider
that, in the six parishes from which we are being forced to
withdraw in January 2001, the ratio of medical costs to total
reimbursements is 111 percent for our Medicare+Choice members.
No health plan can survive while paying 11 percent more in
health care benefits than it receives in payments.
These disruptions have been particularly painful for low-
income Medicare beneficiaries. A recent analysis by AAHP
indicates that Medicare+Choice plans play an important role in
providing supplemental coverage (i.e., coverage that pays for
services not covered by Medicare Part A and Part B) to Medicare
beneficiaries who are financially vulnerable. Our analysis
indicated that a very large proportion of Medicare+Choice
enrollees are ``unsubsidized''--meaning that they do not
receive any third party assistance from, for example, a former
employer or through Medicaid, in purchasing supplemental
coverage for prescription drugs and protection against out-of-
pocket expenses. For many of these individuals, affordable
Medicare+Choice plans may be the only alternative to going
without supplemental coverage.
For many vulnerable beneficiaries, returning to the fee-
for-service program, with its higher costs and reduced
benefits, would result in serious hardships. Changing plans and
health care providers--plus losing benefits such as
prescription drug coverage and paying large supplemental
coverage premiums--can be a highly traumatic and disruptive
experience for low-income beneficiaries.
In an effort to address the crisis in the Medicare+Choice
program, Congress enacted the Balanced Budget Refinement Act of
1999 (BBRA). While this legislation was a step in the right
direction, it provided only a small fraction of the resources
that are needed to fully stabilize the program on a long-term
basis. As a result, the Medicare+Choice program will experience
further disruptions in January 2001. I do not want to downplay
the significance of the BBRA, however, because the small
increase allowed us to stay in a parish--with 2,000 members--
from which we otherwise would have been forced to withdraw.
As the subcommittee knows, July 3 was the deadline by which
Medicare+Choice organizations were required to notify HCFA of
their intention to participate in or withdraw from the
Medicare+Choice program during the 2001 contract year and,
additionally, submit any proposed changes affecting premiums or
benefits. In the weeks leading up to this deadline,
Medicare+Choice organizations were forced to make extremely
difficult decisions on these matters. Those health plans that
decided to curtail their participation in the program did so
only as an option of last resort. In many cases, health plans
reluctantly concluded that--because Medicare+Choice payments
are inadequate and because the program's regulatory
requirements are so burdensome--the Medicare+Choice program is
not providing health plans a viable framework for serving
Medicare beneficiaries.
The Health Care Financing Administration (HCFA) recently
announced that 934,000 Medicare beneficiaries will suffer the
loss of their current health coverage in January 2001 because
Medicare+Choice organizations are being forced to exit the
program. This number is greater than the number who were
similarly affected in the previous two years combined.
Moreover, among the 934,000 beneficiaries who will lose their
health plans in January 2001, approximately 159,000 will be
left with no other Medicare+Choice HMO options in their area.
This is unfortunate news for hundreds of thousands of
Medicare beneficiaries and it is disappointing to
Medicare+Choice plans that have done everything possible to
avoid this unfortunate outcome. The reality is that these
withdrawals could have been avoided. For two years, AAHP and
our member plans have urged Congress and the Administration to
take bold action to address the crisis in the Medicare+Choice
program. Although Congress took an important first step to
improve Medicare+Choice payments last year, the need for more
meaningful changes has not been addressed. Beneficiaries are
now paying a heavy price for this inaction.
Despite our disappointment, we remain committed to the
success of the Medicare+Choice program and we will continue to
work with you to advance the changes that are clearly needed to
put the program on sound footing. We are encouraged that there
is bipartisan movement within Congress to enact such changes.
We also appreciate Congressman Bilbray's resolution--approved
by the House on June 29 by a strong bipartisan vote of 404 to
8--which acknowledged that ``inadequate reimbursement rates''
are a problem in the Medicare+Choice program and that action
must be taken this year to address this critical issue. I thank
Congressmen McCrery and Jefferson and other members of the
Louisiana delegation, as well as the 11 members of this
subcommittee, who voted for this resolution.
We now urge you to take action this year on specific
legislation that follows through on the serious concerns you
expressed when you voted for Congressman Bilbray's resolution.
We believe Congress must provide $15 billion directly to
Medicare+Choice plans over the next five years to stabilize the
Medicare+Choice program on a long-term basis. A commitment of
this magnitude is needed to assure that the Medicare+Choice
program fulfills it promise of preserving and expanding health
care choices for all Medicare beneficiaries. As you consider
options for devoting more funds to the program, we urge you to
assure that resources are allocated in such a way as to assure
that the Medicare+Choice program is viable in areas where
beneficiaries have already selected health plan options and
that the program can expand in areas where such options are not
yet widely available.
We also urge you to combine this additional funding with
meaningful regulatory reforms so beneficiaries are receiving
quality and value in their Medicare+Choice plans. It is
critically important to assure that the benefits of regulations
outweigh their costs. Currently, Medicare+Choice plans are
being forced to devote substantial human and financial
resources toward compliance activities, thus leaving fewer
resources available for paying for health care services
provided to beneficiaries--resulting in higher premiums and
reduced benefits for beneficiaries. One example of a set of
unnecessarily onerous requirements that merit immediate
attention can be found in the physician encounter data
requirements under the Medicare+Choice risk adjustment
initiative. Preparations for their implementation are requiring
an enormous commitment of resources by Medicare+Choice
organizations, and this burden will spill over to require
similar efforts by their network providers. However, less
costly options are available that would meet HCFA's need for
data for risk adjustment purposes. We believe beneficiaries
will be better served by a regulatory environment that assures
quality of care and, at the same time, assures that the costs
associated with regulations do not unnecessarily divert
resources away from patient care and benefits.
Recognizing that more than 6 million Medicare beneficiaries
are relying on the Medicare+Choice program to meet their health
care needs, we believe this is one of the most important issues
facing Congress. We look forward to working with the
subcommittee to address this critically important issue in the
remaining months of the 2000 legislative session.
Mr. McCrery. Thank you, Mr. Renaudin.
Mr. Bedlin?
STATEMENT OF HOWARD BEDLIN, VICE PRESIDENT, PUBLIC POLICY AND
ADVOCACY, NATIONAL COUNCIL ON THE AGING
Mr. Bedlin. Thank you, Mr. Chairman.
Mr. Chairman, Representative Stark, Members of the
Subcommittee, the National Council on the Aging, the Nation's
first organization formed to represent older Americans and
those who serve them, appreciates this opportunity to share our
views on the need for further refinements to the BBA.
Older Americans across the Nation hope that this will be
the year to finally provide access to affordable, meaningful
prescription drug coverage. Unfortunately, the prospects for a
prescription drug bill becoming law this year are not good.
Little time is left on the legislative calendar, and the
Finance Committee is struggling with Chairman Roth's complex
proposal.
Seniors who have been counting on getting prescription drug
coverage soon will be deeply disappointed. The public debate
over prescription drugs has raised high expectations that
something helping beneficiaries directly will be enacted into
law. If all Congress does on Medicare this year is increase
provider reimbursement rates, we suspect the beneficiaries'
disappointment will turn to anger.
Funding for BBA refinements must not diminish the resources
committed to Medicare prescription drug coverage. In evaluating
provider requests, we urge you to exercise caution and consider
how much will give-backs increase beneficiary premiums, how
will give-backs affect trust fund solvency, to what extent are
providers' financial difficulties caused by non-Medicare
payment sources, and what evidence indicates that beneficiaries
are experiencing real access problems for Medicare services?
In addition to considering the concerns of Medicare
providers, NCOA strongly urges the Subcommittee to include
provisions that would directly help beneficiaries. We
appreciated, for example, the outpatient co-insurance, and
immunosuppressive drug coverage improvements included last year
in BBRA. However, these initiatives comprised only about 2.5
percent of the $16 billion allocated. This year we must strike
a more equitable balance between spending on provider and
beneficiary concerns.
My primary message today is that providers are not the only
ones who can use some assistance this year. Medicare
beneficiaries need help, too. For example, we urge the
Subcommittee to lift the cap on immunosuppressive drug coverage
by passing Representatives Canady's and Thurman's H.R. 1115 and
to accelerate the phase-down of outpatient co-insurance to 10
years. Other incremental prescription drug improvements that
should be passed include Representative Dunn's H.R. 2892, which
would cover certain self-injected drugs, and Representative
Cardin's H.R. 634, which would improve access to Medigap drug
coverage.
Our written statement describes specific legislative
recommendations that address serious beneficiary concerns. The
proposals are generally noncontroversial and have or can gain
strong bipartisan support.
For example, we urge the Subcommittee to fix the Medicare
Home Health homebound problem, which is forcing beneficiaries
to be imprisoned within their own homes. The homebound
provision in H.R. 2546 is endorsed by 46 national
organizations, representing tens of millions of beneficiaries.
Specific examples in our written statement vividly illustrate
just inhumane and outmoded the current homebound policy is.
We also urge the Subcommittee to pass Representative
Stark's H.R. 745, which would give beneficiaries the option to
receive Medicare Home Health in an adult day setting,
modernizing the benefit by increasing choice, flexibility and
competition. The bill is designed to be budget neutral, would
enable family care givers to go to work and would increase
social interaction in a less-isolated setting.
NCOA also supports a complete repeal of the proposed
additional 15-percent cut in Medicare Home Health. In the areas
of health promotion and disease prevention, we urge the
Subcommittee to continue the shift in Medicare from a sickness
to a wellness program that began in BBA by passing
Representative Levin's H.R. 3887.
To improve Medicare Plus Choice for beneficiaries, we urge
the Subcommittee to pass Representative Kelly's H.R. 4753,
which would empower beneficiaries by creating Medicare consumer
coalition demonstration projects to decentralize and improve
education and information and negotiate for better benefits,
lower premiums and multi-year contracts. Consumer coalitions
could also help lower the cost of prescription drugs, Medigap
and long-term care insurance and help beneficiaries choose
among multiple PBMs
Our written testimony also includes specific
recommendations to improve Medicare for low-income and
chronically ill beneficiaries.
Last, but not least, we appreciate and support
Representative Thomas's proposal to improve beneficiary
coverage and appeals in Title II, Subtitle C of H.R. 4680.
In conclusion, in crafting this year's Medicare refinement
bill, we urge the Subcommittee to remember that beneficiaries
need help too. Collectively, the proposals described in our
written statement would significantly improve Medicare for
beneficiaries at a relatively modest cost. We look forward to
working with the Subcommittee to move forward on proposals that
can achieve broad bipartisan support.
Thank you.
[The prepared statement follows:]
Statement of Howard Bedlin, Vice President, Public Policy and Advocacy,
National Council on the Aging
Chairman Thomas, Representatives Stark and members of the
subcommittee, The National Council on the Aging (NCOA)--the
nation's first organization formed to represent older Americans
and those who serve them--appreciates the opportunity to share
our views on the need for further refinements to the Medicare
provisions of the Balanced Budget Act of 1997 (BBA).
The National Council on the Aging is a private, nonprofit
research, education, and advocacy organization. With over 7,500
member and affiliated community service and consumer
organizations, NCOA represents America's diverse aging network.
We are proud of our 50-year history of innovation, including
the development of: the Meals on Wheels program; the first
national guidelines for geriatric care managers; the Foster
Grandparents program; and the only accreditation program for
adult day service providers. Members of our National Coalition
of Consumer Organization on Aging--one of ten NCOA constituent
units--represent over 1.5 million older consumers.
Historically, NCOA has had a particular interest in the
needs of disadvantaged, frail older persons. Therefore, as we
look at the many issues facing Medicare beneficiaries today, we
try to focus special attention on low-income chronically ill
beneficiaries.
Older Americans across the nation hope and expect that this
will be the year to finally provide access to affordable,
meaningful prescription drug coverage to all Medicare
beneficiaries. NCOA is pleased that there is virtually
unanimous bipartisan consensus that significant new resources
must be devoted to providing such coverage. The debate is no
longer about whether, but how.
Unfortunately, it appears to us that the prospects for a
prescription drug bill becoming law this year are not good.
Little time is left on the legislative calendar and the Senate
Finance Committee appears to be struggling with a proposal
offered by Chairman Roth, which is significantly different from
the bill passed by the House and adds major new elements to an
already complicated debate. For example, NCOA strongly opposes
a 20 percent copayment for Medicare Home Health services, as
Chairman Roth has suggested.
The issues involved in providing Medicare prescription
drugs are extremely complex--both substantively and
politically--and we are saddened to conclude that Medicare
beneficiaries will most likely have to keep waiting for a bill
to become law. We urge members of Congress to continue to
explore areas for bipartisan compromise in hopes that a miracle
can happen, but we expect that millions of seniors who have
been counting on getting prescription drug coverage soon will
be deeply disappointed.
We acknowledge and are concerned that providers in many
parts of the country are struggling, for reasons that may
include, but certainly go beyond, the BBA. At the outset, we
strongly urge that any funding for BBA refinements in no way
diminish the resources committed to making prescription drug
coverage available to all Medicare beneficiaries. In
determining the degree to which specific provider requests
merit action this year, we urge you to exercise caution and
seriously consider how much provider give-backs under Part B
would increase beneficiary premiums and the extent to which
Part A give-backs would adversely affect trust fund solvency.
We also suggest that attempts be made to analyze the extent
to which Medicare payments are causing providers' financial
difficulties, relative to payments from other sources, such as
employer-based private insurance and Medicaid. More important,
we urge you to closely examine what evidence exists that
beneficiaries are experiencing real problems in accessing
specific Medicare covered services. In conversations with our
members in the field and with other national organizations
representing Medicare beneficiaries, we have found little
evidence to suggest that serious access problems exist, except
in the home health area.
Nonetheless, it appears that the most likely Medicare
legislation to become law this year will address refinements to
the BBA. However, no one should doubt that the very visible
public debate over Medicare prescription drug coverage has
raised high hopes and expectations that something helping
beneficiaries directly will be enacted into law this year. If
all Congress accomplishes on Medicare this year is to increase
provider reimbursement rates, we strongly suspect that, for
many beneficiaries, disappointment will turn to anger.
In addition to considering the concerns of Medicare
providers, we strongly urge the Ways and Means Committee to
take the opportunity this year to include provisions that would
directly help beneficiaries.
We greatly appreciated, for example, the outpatient
coinsurance and immunosuppressive drug improvements included in
last year's Balanced Budget Refinement Act (BBRA). However,
these initiatives comprised only a very small portion of the
$16 billion allocated in the BBRA. This year, we should revisit
these and other issues and go further, while striking a more
equitable balance between new spending on provider and
beneficiary concerns.
Our testimony today is intended to make a number of
specific recommendations that, we believe, combine good policy
with good politics. We believe they can garner broad bipartisan
support in Congress as well as strong support from Medicare
beneficiaries. Some of our suggestions address clear, serious
problem experienced by Medicare beneficiaries. Others would
help beneficiaries by strengthening and modernizing the
Medicare program. Collectively, the proposals would
significantly improve Medicare at a relatively modest cost.
A number of the recommendations we have included are
directly related to specific BBA and BBRA provisions, such as:
improving coverage for preventive care (BBA
sections 4101 to 4108);
fixing the Medicare Home Health ``homebound''
problem (BBA section 4613(a));
improving Medicare+Choice (M+C) for beneficiaries
(BBA section 4001);
conducting further analysis on the impact of using
lower Medicaid rates to determine provider payments for
Qualified Medicare Beneficiaries (BBA section 4714);
lifting the cap on immunosuppressive drug coverage
(BBRA section 227); and
accelerating the phase-in for hospital outpatient
coinsurance (BBRA Title II, Subtitle A).
NCOA recommends that the logical next steps be taken on
these issues to better address the problems that were intended
to be resolved.
Our recommendations are divided into six sections: (1)
Improving Medicare Prescription Drug Coverage for
Beneficiaries; (2) Improving Medicare Home Health for
Beneficiaries; (3) Improving Medicare Preventive Care Coverage
for Beneficiaries, (4) Improving Medicare for Low-Income
Beneficiaries; (5) Improving Medicare for Chronically Ill
Beneficiaries; and (6) Other Medicare Improvements for
Beneficiaries
Many of the bills that we support in our testimony have not
yet been scored by the Congressional Budget Office (CBO). If
they had been scored, we believe that significantly more
members of Congress would have signed on as cosponsors than at
present. We request that the subcommittee ask CBO to score the
bills described below over the next several weeks so that, come
September, they will receive the informed consideration they
deserve.
Improving Medicare Prescription Drug Coverage for Beneficiaries
Improving access to prescription drug coverage is the
number one concern for older Americans. It is clearly the
biggest problem now facing beneficiaries. NCOA has been working
closely with other organizations in the Leadership Council of
Aging Organizations (LCAO) to move legislation consistent with
principles we agreed upon early in the year. A Medicare
prescription drug benefit should be accessible, voluntary,
affordable, manageable and effective.
As we have stated above, it appears that enactment of a
Medicare prescription drug bill is not likely this year.
However, that does not mean that Congress should do nothing in
this area. We strongly urge that Congress take advantage of the
unique opportunity and momentum that currently exists to do
something this year to improve prescription drug coverage for
Medicare beneficiaries.
We believe that there are three incremental proposals that
are straightforward and inexpensive, would help a significant
number of beneficiaries in need, and could be passed with broad
bipartisan support. The proposals would not impede more
comprehensive reforms from occurring at a later date. Passage
of the three proposals would acknowledge the clear public
sentiment that this Congress should not respond to the urgent
need for Medicare prescription drug coverage by doing nothing.
Specifically, we urge the Ways and Means Committee to pass: (1)
H.R. 1115, the Immunosuppressive Drug Coverage Extension Act,
(2) H.R. 2892, the Access to Innovation for Medicare Patients
Act, and (3) H.R. 634, the Medigap Access Protection for
Seniors Act. We also urge the subcommittee to consider coverage
of oral cancer drugs.
H.R. 1115, the Immunosuppressive Drug Coverage Extension
Act, would eliminate the time limitation on benefits for
immunosuppressive drugs under Medicare. We are grateful for
last year's BBRA improvement to extend coverage from 36 to 44
months for individuals whose transplant occurred after December
31, 1996. Representatives Canady and Thurman have introduced
H.R. 1115 to eliminate the time limitation entirely for
transplant recipients who are Medicare-eligible based on age or
disability. The bill has 272 bipartisan cosponsors, including
22 members of the Ways and Means Committee and 29 members of
the Commerce Committee. President Clinton's budget also
proposed to raise the current cap. In a December 1999 Institute
of Medicine report (requested by Congress in the BBA), the IOM
recommended that the rationale for eliminating the time
limitation is strong, noting the positive economic, clinical
and social implications of indefinite Medicare coverage.
The current limit is arbitrary and costly. It makes no
sense for Medicare to pay for the more expensive consequences
of organ rejection, such as dialysis or a second transplant,
but refuse to pay for the drugs to prevent the rejection of the
initial transplanted organ beyond 44 months. This coverage can
mean the difference between life and death for some and, for
others, the difference between a transplant recipient having to
experience the pain of an organ rejection, a return to
dialysis--for kidney recipients--and the return to a long
waiting list for another organ. We urge the Ways and Means
Committee to pass H.R. 1115.
H.R. 2892, the Access to Innovation for Medicare Patients
Act, would expand Medicare coverage of certain self-injected
biologicals. Sponsored by Representative Dunn the proposal has
65 bipartisan cosponsors. Currently, Medicare will only cover
drugs that are administered ``incident to'' a physician's
service. These include injectables or infusion therapies
administered in a physician's office or an outpatient setting.
There is no good policy rationale for Medicare to cover
intravenous drugs and physician-administered formulations, but
to refuse to cover more patient-friendly, convenient
alternatives. Refusing to cover biologicals that can be self-
administered is particularly harmful to beneficiaries in rural
areas and disabled and lower income seniors that have
difficulty getting to their physicians' offices. Almost 1.2
million Medicare beneficiaries suffer from the four diseases
that the biologicals under the bill could help with--Rheumatoid
Arthritis, Multiple Sclerosis, Hepatitis C, and Deep Vein
Thrombosis. We urge the Ways and Means Committee to pass H.R.
2892.
H.R. 634, the Medigap Access Protection for Seniors Act,
would guarantee that Medicare beneficiaries enrolled in M+C
plans offering prescription drug coverage have access to a
Medigap policy that offers similar presciption drug coverage in
the event the M+C plan terminates service in the area in which
the beneficiary resides. The proposal is sponsored by
Representative Cardin. By next January, approximately 1.5
million Medicare beneficiaries will have been forced
involuntarily to leave their M+C plan. Unfortunately, for those
beneficiaries who have no choice but to enroll in the
traditional fee-for-service program, only three of the ten
Medigap policies are guaranteed issue, with no underwriting.
Not one of these three policies covers prescription drugs.
Medicare beneficiaries in these situations must have access to
a Medigap policy with prescription drug coverage. We urge the
Ways and Means Committee to pass H.R. 634.
We also urge the Ways and Means Committee to analyze and
consider extending Part B coverage to cancer drugs in oral
forms. Currently, injectibles and IV chemotherapeutic agents
are covered. Some limited oral chemotherapy drugs are covered
only if they have an IV equivalent. Many of the newer
chemotherapeutic agents will be in oral tablet form and will be
easier for the patient to take. Since Medicare covers all IV
and injectible cancer drugs now, serious consideration should
be given to coverage of oral forms so that beneficiaries will
have access to the most appropriate and effective cancer
treatments.
Finally, NCOA would like to suggest an area for further
analysis and discussion in hopes of helping to bridge the
divide and find some middle ground between Republican and
Democratic prescription drug proposals. One of the primary
disagreements has been over the respective roles of the public
and private sectors in providing such coverage. We suggest that
additional work be done to explore the feasibility of
developing a competitive system in which both private insurers
and the traditional fee-for-service program offer prescription
drug coverage on a level playing field. Conceptually, this is
consistent with the proposal considered by the National
Bipartisan Commission on the Future of Medicare. Clearly, a
variety of important issues would need to be worked out,
foremost among them--how to craft subsidies to avoid adverse
selection and ensure affordability for all beneficiaries. NCOA
looks forward to working with members of the subcommittee to
develop a compromise Medicare prescription drug proposal that
can receive broad bipartisan support.
Improving Medicare Home Health (MHH) for Beneficiaries
The MHH program is particularly important to lower income,
frail beneficiaries. The typical home health user is widow over
75 years of age with income below $20,000. If our most
vulnerable older Americans are to live independent lives and
avoid premature institutionalization, a number of critical
improvements must be made to the program. We are specifically
recommending that the Ways and Means Committee pass: (1)
Section 5 of H.R. 2546, which would fix the ``homebound''
problem; (2) H.R. 745, which would give beneficiaries the
choice to receive home health in an adult day setting; and (3)
H.R. 4219, which would repeal the proposed additional 15
percent MHH cut.
H.R. 2546, the Preserve Access to Care in the Home (PATCH)
Act, includes a provision that would fix the MHH homebound
problem. The bill is sponsored by Representative Riley and
includes several other home health provisions, some of which
were addressed last year in BBRA. Section 5 of H.R. 2546 is
identical to identical to S. 2298, sponsored by Senator
Jeffords, cosponsored by Senators Helms, Snowe, Reed and Leahy,
and endorsed by 46 national organizations represented millions
of seniors and persons with disabilities. We are currently
working with Rep. Markey to introduce a freestanding version of
Section 5.
Under current law, in order for Medicare beneficiaries to
receive coverage for home health services they must be
``confined to home.'' Current irrational and inconsistent
policy interpretations by the Health Care Financing
Administration and followed by fiscal intermediaries are
causing substantial harm to Medicare beneficiaries by
effectively forcing home health users to be imprisoned within
their own homes. For example, these restrictions are
inappropriately denying access to adult day services, which
complement home health benefits, relieve caregiver burdens and
delay nursing home placement, at no cost to the Medicare
program.
We recently heard of three homebound stories that help to
illustrate the problem. First, a beneficiary with Alzheimer's
disease in Vermont was denied home health coverage because, on
a particular occasion, he wandered out of his home. Second,
four beneficiaries in Illinois were not permitted to attend
adult day care without losing home health coverage, even though
the adult day center was in the same apartment building they
lived in. Finally, a woman in Vermont never got to see her
husband during the last two weeks of his life in a hospice,
because she was afraid that a visit would result in her losing
home health coverage. Current policy on the homebound
requirement is inhumane and unnecessary.
Section 5 of H.R. 2546 would clarify that, while
beneficiaries still must have a normal inability to leave home
in order to receive MHH coverage, periodic absences from home
would be allowed, and attendance at adult day care centers
would be permitted without losing home health benefits. We urge
your support of the proposal for a number of reasons,
including:
Since Medicare home health only covers part-time
or intermittent services, supplemental benefits such as adult
day care can be critical to keeping families together in a home
or community setting;
Current law can be detrimental to the health of a
beneficiary who, for example, has suffered a broken hip and
should walk around the block as part of her therapy plan, but
does not for fear of losing home health coverage;
Current law is unenforceable because there is no
way to effectively monitor the frequency and length of absences
from the home; and
It is irrational to deny home health services to a
quadriplegic beneficiary who is lifted into a wheelchair and
uses specially adapted transportation and is therefore not
considered to be homebound.
We strongly urge the Ways and Means Committee to pass
section 5 of H.R. 2546.
H.R. 745, the Medicare Substitute Adult Day Care Act, would
give beneficiaries the option to receive some or all of their
Medicare home health services in an adult day setting. The bill
is sponsored by Representative Stark and has 39 bipartisan
cosponsors. A companion bill--S. 2826--was recently introduced
by Senator Santorum. Fundamentally, the proposal would
modernize the MHH benefit by giving beneficiaries more choice,
making the benefit more flexible and increasing competition.
This would be a substitution, not an expansion, of services.
The bill would not make new people eligible for Medicare home
health benefits or expand the list of services paid for. In
fact, in addition to home health benefits, transportation,
meals and planned supervised activities would also be provided
at no additional cost to Medicare. The bill is designed to be
budget neutral but has not yet been scored by CBO.
The primary difference from current law is where services
would be provided. Giving beneficiaries and their families the
choice to receive Medicare home health services in an adult day
location has a number of important advantages, including:
increasing social interaction in a less isolated
setting, which will reduce depression and facilitate healing
and rehabilitation;
individualized therapeutic activities, nutrition,
health monitoring and transportation for no additional cost to
Medicare;
improving providers' opportunities to monitor and
observe the beneficiary's health status;
enabling family caregivers to continue working,
since the beneficiary would be cared for all day; and enhancing
the ability to monitor and assure quality of care, since
services would be delivered in one location in a group setting,
rather than in numerous settings with only the beneficiary and
provider present.
We urge the Ways and Means Committee to pass H.R. 745.
As the front page New York Times story indicated on April
21st of this year, Medicare spending on home health has plunged
over the past two years. The dramatic and unprecedented BBA
cuts in home health have had a significant negative impact on
beneficiaries. Over the past two years, we have heard from many
beneficiaries about serious home health access problems. Recent
estimates indicate that the cut was approximately 54 percent
and that the number of beneficiaries served under the program
has declined from about 3.5 million to 2.6 million. We were
particularly pleased to see the steps taken last year to
address the very serious problems in MHH caused by the BBA.
It is shocking to think that current law includes an
additional 15 percent cut in MHH, scheduled to take effect in
October of next year. H.R. 4219, the Home Health Payment
Fairness Act, the Home Health Payment Fairness Act, would
repeal the scheduled 15 percent MHH cut. Sponsored by
Representative Watkins, the bill has 119 bipartisan cosponsors.
Senator Collins' companion bill--S. 2365--has 53 cosponsors.
Another one-year delay merely postpones what clearly must be
done. We urge the Ways and Means Committee to repeal the cut by
passing H.R. 4219.
Improving Medicare Preventive Care Coverage for Beneficiaries
We deeply appreciate the critical role subcommittee members
played in including provisions in the BBA to improve coverage
for preventive services for Medicare beneficiaries. However,
the time has come to go further. It is often easier and less
expensive to prevent disease than to cure it. Disease
prevention must be an essential component of Medicare
beneficiaries' continuum of care. Medicare still fails to cover
a number of important preventive services, and those that are
covered are underutilized. We, therefore, urge the Ways and
Means Committee to pass H.R. 3887.
H.R. 3887, the Medicare Wellness Act, would promote health
promotion and disease prevention services and expands Medicare
coverage of preventive benefits. Introduced by Representatives
Levin and Foley, the proposal has 22 bipartisan cosponsors and
is endorsed by 23 national organizations representing older
Americans. H.R. 3887 would provide Medicare coverage for some
of the most prominent, underlying risk factors for illness that
face all Medicare beneficiaries, including: hypertension
screening, tobacco cessation counseling, glaucoma screening,
medical nutrition therapy, hormone replacement therapy
counseling, vision and hearing loss screening, osteoporosis
screening and counseling, and cholesterol screening. In
addition, H.R. 3887 incorporates an aggressive applied and
original research effort that will investigate ways to promote
early detection and improve the utilization of current and new
preventive benefits.
The addition of these new benefits would accelerate the
critical shift in Medicare that began in 1997 under the BBA,
from a sickness program to a wellness program. The legislation
offers a cost-effective approach to disease management and
injury prevention that looks back at some of the lessons
learned from the BBA and addresses the underutilization of
preventive services.
We also urge the Ways and Means Committee to consider the
President's proposal to eliminate all coinsurance and
deductibles for preventive services. According to recent
studies, utilization of these critical services has been
surprisingly low. We believe that by encouraging greater
utilization of these services, beneficiaries' quality of life
would be greatly enhanced and Medicare expenditures would
decline over the long run.
We recognize that it might not be feasible this year to
cover all of the new preventive benefits included in H.R. 3887.
We appreciate, for example, the leadership of Representative
Johnson to extend Medicare coverage to nutrition therapy under
H.R. 1187, the Medicare Medical Nutrition Therapy Act, which
has 283 bipartisan cosponsors. We would encourage members of
the subcommittee to evaluate those preventive benefits that
would help the greatest number of older people and provide the
greatest potential for long-run savings.
Improving Medicare+Choice for Beneficiairies
Under Medicare today, beneficiaries are having an
increasingly difficult time navigating their way through an
unstable system that is growing more and more complex. Not only
are beneficiaries having problems getting timely and accurate
information about the new choices they face, but they cannot
effectively exercise their clout in the marketplace. As we move
toward a more competitive program, it is essential to test
models designed to help competition work well for
beneficiaries. NCOA has worked closely with Representative
Kelly to craft H.R. 4753, the Seniors Health Care Empowerment
Act, which would create six demonstrations to set up Medicare
Consumer Coalitions (MCCs) to provide education and information
and to negotiate for better benefits and lower premiums for
Medicare beneficiaries.
NCOA first testified on MCCs before the Senate Finance
Committee in 1997 at hearing on FEHBP as a model for Medicare
Reform. We also testified on MCCs last year before the National
Bipartisan Commission on the Future of Medicare. NCOA completed
a study in December on the feasibility of MCCs, funded with a
grant from the Retirement Research Foundation. The study was
authored by NCOA President and CEO James Firman; David Kendall
from the Progressive Policy Institute; Jay Greenberg, who
helped create the CALPERs insurance program; and Dwight McNeil,
who has served for many years as a consultant to private,
employer-based insurers. The study was assisted by a
distinguished advisory panel composed of many Medicare
researchers who have testified over the years before this
subcommittee.
MCCs would be non-profit, community-based organizations
designed to empower Medicare beneficiaries to be informed
consumers, help them get the most out of their healthcare
dollars, and enhance consumer protections. MCCs would boost
seniors' purchasing clout by aggregating individual buying
behavior into group purchasing power. The coalitions would
consist of existing local organizations such as grassroots
seniors groups, union and employer retiree groups, senior
centers, health insurance counseling programs, area agencies on
aging, and faith congregations. A majority of MCC Board Members
would be Medicare beneficiaries.
Informed and empowered consumers are the key to any effort
to reform and improve Medicare. MCCs would help to achieve this
objective. H.R. 4753 would also permit MCCs to enter into
multi-year contracts with M+C plans, which would add much-
needed stability to the market. The coalitions could help lower
the cost of prescription drugs, as well as Medigap and long-
term care insurance. MCCs could also assist beneficiaries in
negotiating with and choosing among multiple Pharmacy Benefit
Managers.
A survey of 2,000 older consumers commissioned by NCOA
found that about four out of five (78 percent) would like to
receive information and counseling from a Medicare information
coalition. Fewer respondents (ranging from 25 to 35 percent) in
the same survey said they would like to receive this
information from the government, employers, or health plans.
Fifty-seven percent of the seniors polled expressed interest in
becoming a member of a Medicare purchasing coalition.
Medicare information coalitions are included both in S.
2807, the Medicare Prescription Drug and Modernization Act
(introduced by Senators Breaux and Frist) and S. 2758, the
Medicare Outpatient Drug Act (introduced by Senator Graham).
MCCs appeal to the legislative need for bipartisanship and
achievable progress to reform Medicare this year. Empowering
seniors by building on what works in the private sector should
attract support from both liberals and conservatives. We are
not asking for authority to create MCCs nationwide, but to
demonstrate the feasibility and efficacy of this promising
innovation. We urge the Ways and Means Committee to pass H.R.
4753.
Improving Medicare for Low-Income Beneficiaries
Our current methods for protecting low-income Medicare
beneficiaries against increasing out-of-pocket costs are simply
abysmal. Low-income beneficiaries pay far too much out-of-
pocket for care. Those eligible for protection do not receive
it, reliable data is severely lacking and the problems are only
going to get worse (primarily because of a BBA provision that
jeopardizes access by permitting states to pay for protections
at Medicaid, rather than Medicare, rates). Current Medicare
low-income protections are an embarrassment. Changes must be
made.
According to the Urban Institute, in 1996, only 63 percent
of beneficiaries persons eligible for Qualified Medicare
Beneficiary (QMB) protections received it (payment for
premiums, coinsurance and deductibles for persons with incomes
below 100 percent of poverty) and only 10 percent of those
eligible for Specified Low-Income Medicare Beneficiary (SLMB)
protections received it (premium payments for persons with
incomes between 100 percent and 120 percent of poverty). Under
BBA, premium protections were created under a block grant
program for ``Qualified Individuals'' (QI-1s), persons with
incomes between 120 percent and 135 percent of poverty. Some of
the more obvious impediments to participation include: lack of
outreach; a confusing, expensive application process; and a
restrictive, burdensome asset eligibility test (less than
$4,000 in non-housing assets for singles, $6,000 for couples).
It makes no sense for Medicare protections to be the
responsibility of states under Medicaid. States strongly resent
these programs and do a poor job administering them. Ideally,
the QMB program should be federalized, eligibility levels
should be increased to 150 percent of poverty and the program's
asset test should be eliminated. These three simple changes
would solve the problem. The only issue is cost. We believe the
changes would be well worth it.
If the costs of these proposals are deemed prohibitive at
this time, a far less expensive improvement would be to reform
the SLMB and QI-1 programs in the following ways:
Incorporate the QI-1 program into the SLMB program
and make it federal--Unlike QMBs, most SLMBs and QI-1s are not
Medicaid eligible. It makes no sense for these two programs to
be separate.
Eliminate the SLMB and QI-1 asset tests--This
would reduce the cost of the application process by reducing
the time spent on verification of information. We do not
believe that this change would open the program up to a large
number of new eligibles since there is a strong correlation
between income and assets among older persons.
Improve data collection--Reliable data on SLMBs is
severely lacking. Federalization will help a great deal in this
regard.
We also suggest that Congress enact H.R. 854, the Low-
Income Medicare Beneficiary Assistance Act, which would amends
Medicaid to provide for a presumptive eligibility period for
the QMB and SLMB programs. This would provide significant help
to those who are eligible for these benefits but do not receive
them. Sponsored by Representative Bentsen, the bill has 25
bipartisan cosponsors. The proposal is similar to H.R. 1455,
the QMB Improvement Act, sponsored by Representative McDermott.
Finally, BBA Section 4714 permitted states to pay providers
serving QMBs the Medicaid rate rather than the typically higher
Medicare rate. We understand that at least 33 states have taken
advantage of this provision. We have received anecdotal reports
that, not surprisingly, the change has resulted in reduced
access to providers for QMBs. The problem is we do not have
good data on what is happening. We suggest that GAO or MEDPAC
be requested to analyze the problem and report on the degree to
which QMBs are suffering from greater access problems, relative
to other Medicare beneficiaries, as a direct result of this BBA
provision.
Improving Medicare for Chronically Ill Beneficiaries
NCOA also urges the Committee to incorporate in it's
Medicare package several provisions proposed by members of the
Chronic Care Coalition, a group of national organizations,
including NCOA, working to find person-centered, systems-
oriented solutions to chronic care.
Chronic conditions our leading cause of illness, disability
and death. Yet our system continues to function around the
needs of acute illness care. Chronic conditions represent the
highest cost segment of health care, accounting for 70 percent
of all personal health care expenditures and the major of all
major spending categories financed by Medicare; e.g. an
estimated 96 percent of home care visits and 83 percent of
prescription drug use.
The nature of chronic illness is out of sync with the way
we administer, finance and deliver care. While chronic
conditions require the support of multiple health care
providers and disciplines that should be working
collaboratively to meet the diverse needs of frail elders with
multiple conditions, we have an archaic, fragmented health care
system composed of multiple providers working independently. We
need to begin devising systems approaches that promote
integration of services, financing and care delivery. For
example, we should refine Medicare and Medicaid waiver
authority to enable unification of administrative and oversight
functions and help facilitate integration of benefits and care
delivery.
In addition, BBA provisions changing the way fee-for-
service and M+C plans are financed discourage plans and
providers from serving high-risk populations. While the
prospective payment policies and M+C risk adjustment methods
devised by HCFA are built around ``average costs'' of Medicare
beneficiaries, the frail chronically ill are anything but
average. In fact, their per capita medical expenditures are two
to four times the average Medicare beneficiary.
To address these issues, the Chronic Care Coalition has
been working on legislation to improve chronic illness care in
this country. NCOA urges members of this Committee to
incorporate selected provisions from this proposed legislation
into your Medicare package, including:
Establish a National Commission on Improving
Chronic Illness Care to create awareness of the problems the
chronically ill face in receiving appropriate coordinated
healthcare and supportive services. The Commission would be
charged with examining barriers, developing a coherent national
policy and establishing direction in reforming current
approaches regarding chronic illness care.
Consider the cost effectiveness of chronic illness
prevention measures over time. The CBO should be required to
submit to Congress a study describing methodologies for
measuring the long-term cost effectiveness of covering certain
preventive benefits under Medicare. Currently, CBO scores
legislative proposals on the basis of expenditures and cost
savings attributable to specific providers and specific
programs for a specific budget cycle. Since coverage of
preventive interventions can accrue across budget categories
for specific providers and programs, and because some
interventions do not produce short-term savings, we need to
modify the way we evaluate public spending for the chronically
ill.
Establish a national database on chronic illness.
In order to set national goals and targets regarding the
reduction of chronic disease prevalence rates and reduce the
growth of public and private expenditures for chronic illness
care, we first need to establish a unified database on chronic
care costs. Currently data is collected by provider type, by
program type and by budget cycle. Chronic care expenditure data
are not aggregated to show total system-wide expenditures over
the expected lifetime of specific chronic conditions.
Develop and implement a common patient assessment
instrument across settings. A common assessment instrument
would provide for comparability of information and reduce the
need for repeated evaluations and data entry at each new site
of service. It would dramatically reduce the amount of
duplication of data collection required by current regulations
and free up needed dollars for direct services.
Develop a National Resource Center on the Internet
for disabling chronic illness. The Agency for Healthcare
Research and Quality should be directed to develop in
electronic format an authoritative, reliable National Resource
Center for disabling chronic illnesses, for use by patients and
their families for education and self-management. The Center
also would include information for patients and providers on
current clinical guidelines that are currently available in the
National Guidelines Clearinghouse maintained by the Agency.
There is also great potential for community service
organizations to work with Medicare providers to improve
preventive health services and chronic illness care.
Demonstrations should be designed and funded to test the
efficacy of community service organizations to improve health
outcomes and reduce costs for specific chronic conditions.
Finally, we urge that the full Ways and Means Committee to
pass H.R. 3872, the Long-Term Care and Retirement Security Act,
which would provide a new $3,000 tax credit for individuals
with long-term care needs or their caregivers and give
individuals purchasing a qualified long-term care insurance
policy an above-the-line tax deduction for the premiums paid.
We deeply appreciate Representative Johnson's leadership on
this bill, which has 46 bipartisan cosponsors.
Other Medicare Improvements for Beneficiaries
Another very important issue for beneficiaries is the
coinsurance paid for outpatient hospital services, which now
averages almost 50 percent of costs. Although coinsurance
amounts will remain fixed at their current dollar level until
they are reduced to 20 percent of Medicare-approved payment
amounts, the process will take up to 40 years for some
services. By comparison, the most gradual phase-in Medicare has
used to date for any payment system change is 10 years. We
greatly appreciate last year's BBRA proposal under Title II,
Subtitle A to cap the coinsurance amount at the inpatient
hospital deductible. However, the current phase-in schedule is
simply far too long. MedPAC has twice recommended that the
reduction to achieve a 20 percent coinsurance rate be
accomplished in a more reasonable time frame. We urge the Ways
and Means Committee to accelerate the phase-in period on
outpatient coinsurance to 10 years.
NCOA deeply appreciates Chairman Thomas' efforts to improve
beneficiary coverage and appeals procedures in Title II,
Subtitle C of H.R. 4680, the Medicare Rx 2000 Act. These
provisions would respond to serious concerns with current
procedures. We urge the Ways and Means Committee to pass Title
II, Subtitle C of H.R. 4680.
H.R. 2870, the Medicare Vision Rehabilitation Coverage Act,
would provide Medicare coverage for restorative services to
promote the independence of beneficiaries diagnosed with a
vision impairment. Sponsored by Representative Capuano, the
bill has 101 bipartisan cosponsors. These specialized services
help older persons with vision impairment to recover the
ability to walk around safely, carry out regular daily
activities, and learn new methods of reading and writing. They
can restore a person's independence, prevent injuries, and
improve quality of life. We urge the Ways and Means Committee
to pass H.R. 2870.
Finally, as we look at the future of the Medicare program
as our population rapidly ages, we urge the Congress to take
advantage of the historic opportunity to devote approximately
15 percent of the non-Social Security surplus to extend
Medicare solvency. It is important to remember that dedicating
these dollars to the trust fund also counts toward debt
reduction, thereby creating a double benefit.
Conclusion
The very visible public debate over Medicare prescription
drug coverage has raised high hopes and expectations that
something to help beneficiaries directly will be enacted into
law this year. But if Congress merely increases provider
reimbursement rates, we suspect that many beneficiaries will be
disappointed and angry.
Funding for BBA refinements must in no way diminish the
resources committed to making prescription drug coverage
available to all Medicare beneficiaries. In evaluating provider
requests, we urge you to exercise caution: seriously consider
how much provider give-backs under Part B will increase
beneficiary premiums and the extent to which Part A give-backs
will adversely affect trust fund solvency. We suggest that
attempts be made to analyze the extent to which Medicare
payments are causing providers' financial difficulties,
relative to payments from other sources, such as employer-based
private insurance and Medicaid. We also urge you to closely
examine what evidence exists that indicates that beneficiaries
are experiencing real problems in accessing specific Medicare
covered services.
In addition to considering the concerns of Medicare
providers, NCOA strongly urges the Ways and Means Committee to
take the opportunity this year to include provisions that would
directly help beneficiaries. Specifically, we urge the
Committee to pass the following proposals this year:
H.R. 1115, the Immunosuppressive Drug Coverage
Extension Act;
H.R. 2892, the Access to Innovation for Medicare
Patients Act;
H.R. 634, the Medigap Access Protection for
Seniors Act;
Consider extending coverage to oral cancer drugs;
Section 5 of H.R. 2546, the Preserve Access to
Care in the Home Act;
H.R. 745, the Medicare Substitute Adult Day Care
Act;
H.R. 4219, the Home Health Payment Fairness Act;
H.R. 3887, the Medicare Wellness Act;
H.R. 1187, the Medicare Medical Nutrition Therapy
Act;
Eliminate all coinsurance and deductibles for
preventive services;
H.R. 4753, the Seniors Health Care Empowerment
Act;
H.R. 854, the Low-Income Medicare Beneficiary
Assistance Act;
Recommendations from the Chronic Care Coalition,
including:
Establish a National Commission on Improving
Chronic Illness Care;
Consider the cost effectiveness of chronic illness
prevention measures over time;
Establish a national database on chronic illness;
Develop and implement a common patient assessment
instruments across settings; and
Develop National Resource Centers on the Internet
for disabling chronic illness;
H.R. 3872, the Long-Term Care and Retirement
Security Act;
Speed up the phase-in period on outpatient
coinsurance to 10 years;
Title II, Subtitle C of H.R. 4680, the Medicare Rx
2000 Act; and
H.R. 2870, the Medicare Vision Rehabilitation
Coverage Act.
Mr. McCrery. Thank you, Mr. Bedlin, and thank you all for
your testimony.
And we will now proceed to questions from our panel. Mrs.
Johnson is first.
Mrs. Johnson of Connecticut. First of all, let me commend
the panel on the specificity of their recommendations. We
really appreciate that. At this time in the process, we need to
know specifically what you thought was most important, and I
think you ought to be thinking about priorities, as well.
Second, let me say that I appreciated Mr. Renaudin laying
out so clearly the fundamental problem with Medicare Plus
Choice plans. This administration has starved those plans, and
it is a tragedy. Because look at how the seniors feel about
their choice between their managed care plan, their Medicare
Plus Choice plan, and going back to Medicare. They aren't happy
to go back to Medicare, and they wouldn't be having to go back
to Medicare if this administration had, frankly, been fairer
about reimbursements.
You do, though, get to the regulatory reforms only at the
end of your testimony. You mentioned the onerous and
unnecessary requirements associated with the physician
encounter data requirements. And so I just want to make sure
that you line out the regulatory problems for us a little more
clearly, as you have the reimbursement policies.
Unfortunately, I only have 5 minutes, so I want to run
through a couple of things that I need from people.
Mr. Walker, I appreciate all you say, and again your
specific recommendations. But one of the things that absolutely
is driving nursing home providers in my district out of their
minds and making it very hard for them to retain their very
best employees is the administrative complexity associated with
the current reimbursement system, and they were stunned to be
confronted with additional layers of administrative complexity
associated with the new payment system that is going to go into
place.
Now, I am not quite sure from today's testimony whether
just the sheer increase in payment under the old system carries
also that regulatory burden. But we have got to do something
about the regulatory burden in the system. It certainly is
affected Home Health, too. We are going to drive people out of
the care-giving environment because they came there to give
care, not to do paperwork.
So any specific recommendations you can give us in this,
and I am looking at several sets of eyes here for this bill, is
important. Because you can talk about this system, you can tout
the system politically, but we are going to destroy,
particularly the small providers, but eventually force small
providers into big systems if we don't do something about the
enormity of the paperwork problem.
And, Mr. Corlin, I did want to ask you a question. Your
testimony, because--this is extremely important. I did not
agree with you on the collective bargaining bill of my
colleague from California, but I do agree with you that the
problems in the system are extreme. We have included in our
prescription drug bill, a reform of the appeal rights for
patients in Medicare, because now they effectively have no
appeal rights. But this issue of physicians getting no right to
provide better information and being subject entirely to
penalties and over payment judgments made by extrapolation, for
the small family practitioner out there, this is devastating.
They do not have the office staff. They cannot afford the legal
staff. They cannot counter.
And so I am very interested in completely altering the way
we deal with physicians in this regard, because talk about no
rights in a free society, this is a total abrogation of
physician rights, far worse, than frankly, what is going on for
them in the private sector, and I am an advocate of the right
to sue, so I think there are a lot of problems in the private
sector.
So I hope you will think about what specifically could be
done there,--because I am using up most of my questioning time
to tell you what I need to know--because we really--there are
administrative problems in the system that are so severe, that
even if the reimbursements are adequate, and the most we are
going to hope for in the next round is barely adequate,
unfortunately, but we are now pushing people out of the system,
and there is no question in my mind, but that seniors in my
district are experiencing less access, not just as Medicare
Plus Choice goes out, but in general. We are going to see it
more in specialties and further on down. If the administration
goes through with their proposal to change the reimbursements
for cancer drugs, all of those community based cancer centers
are going to fold up, and all of that is going to go to the
hospital, less convenient and more costly to us. So
reimbursement policies can either create access or they can
destroy access, and some of the things that you pointed to here
today that are not about money are very much about care. So
please feel free to follow up with us on administrative issues
as well, and this problem with the physicians and the
extrapolation and the penalties is simply a very big one. You
probably have 30 second, Dr. Corlin. The red light went on. You
can come back to it later.
Mr. McCrery. Mr. Stark.
Mr. Stark. Thank you, Mr. Chairman. I just wanted to set
the record straight a little bit before I inquire of Mr.
Bedlin. I just want to suggest to you that the two complaints I
am hearing are that HCFA has imposed excessive regulatory
burdens, I talked to HCFA, and they suggest that they are
getting a lot of vague whining from the managed care plans.
Their most serious complaint is that the plans have to
demonstrate how they improve the quality of care--and I suspect
they cannot demonstrate it, which is why they do not like to
fill out those reports--but HCFA also tells me because the
managed care plans have been whining so much about it, they
have stopped asking for it. And the second, of course, is the
issue of physician encounters so that we can get some relative
way to pay people for risk adjustment, which I am afraid the
managed care people feel will cost them money, so they are not
being very cooperative. But at any rate, HCFA has asked--and I
will repeat the request--that you send us a letter, describing
specific excessive regulatory burdens. I would just like it
written out, please, so I can see. Send me the form. Show me
what is excessive, and I certainly would be glad to go to bat.
Now, the other problem is that Medicare is significantly
underfunded. I would point out that according to MedPAC staff
this morning, that the growth for Medicare fee-for-service, in
contravention to some of the testimony that was presented,
since `97 has been 5-\1/2\ percent, whereas the cumulative
growth in the average Medicare Plus Choice payment has been 8.6
percent, and since `97, all Medicare Plus Choice plans have
received payment increases of at least 6 percent total. So that
in fact the Medicare Plus Choice payment has gone up more than
the Medicare fee-for-service. We should see that the record is
clear on those issues.
Mr. Bedlin, if we give relief to the providers, all those
folks to your right there, would you think that it might make
some sense to insure that the extra money we give them actually
goes to providing services and just does not drop through the
operation statement to the bottom line or to higher executive
pay? For example, if we give more money to the SNFs, could we
ask them to pass it on in higher or appropriate staffing
ratios? If we give home health agencies more money, could we
ask them to make available to the public how many visits per
episode they actually provide? Would those sorts of things be
fair exchange for giving more money to the managed care plans?
Mr. Bedlin. I am not sure precisely how you would craft
that or enforce it, but certainly we do believe that if
providers are going to get increases in reimbursement, that
that should inure to the benefit of the beneficiary population.
So the ideas that you have articulated are certainly ones that
I think should be seriously considered, particularly with
regard to staffing. It is a huge problem right now, both within
nursing homes and home health, and we really need to do
something about that, and to the degree that we attempt to
address those issues, I do think that we need to be very
careful that the dollars go specifically to the people that
they are hiring, those new staffers, yes.
Mr. Stark. I agree. Let me toss a couple more at you,
because I would like to encourage Chairman Thomas and my
colleagues on the Subcommittee to have a little of however much
goes back, go back to the beneficiaries. Let me give you a
couple of ideas and see which ones sound good to you.
Congresswoman Kelly has a bill to promote. Medicare
Consumer Co-ops. I hope to introduce a bill this week requiring
Medicare, or at least one of its carrier contractors, to
establish a website, basically for the purchase of
pharmaceuticals, either overseas or in this country to get some
prices out to the seniors over the Internet so they can see
what pharmaceuticals actually cost, whether they bring them in
from Canada by mail or wherever.
The other issue is the QMB and SLMB plans are under
utilized, as we are all aware. Their outreach is bad, and Mr.
Bentsen and Dr. McDermott have a presumptive enrollment bill,
that just says, ``Look, let us presumptively enroll these
people through a Social Security data match, and then they are
in.'' I am not sure that the cost would be much greater, but we
would at least then take care of some of the seniors who can
least afford either co-pays or they would get help to pay the
managed care plan.
My third suggestion, again which might not cost much, is we
are trying to introduce a bill to encourage coordination in the
care of the chronically ill. You have talked about the
problems, but we are wondering if we can carve out some easier
parts of this coordination of chronic care. I wonder if you
could elaborate on the need for that legislation or any other
ideas you might suggest, the less costly the better, to see
that some of this give-back finds its way to the beneficiaries.
Mr. Bedlin. We would strongly support all three of the
initiatives that you have described. Medicare consumer
coalitions would help to empower beneficiaries in a marketplace
where right now they have little or no clout. To lower the cost
of prescriptions drugs, Medigap, long-term care insurance, help
a great deal in terms of decentralizing the education and
information, which is extraordinarily difficult in terms of
navigating through a very complex system. QMBs and SLMBs, you
are absolutely right. It is unbelievable how low the
participation rates are. According to the Urban Institute, for
example, in 1996, the SLMB rates--and that is premiums for
people between 100 and 120 percent of poverty--only 10 percent
who were eligible actually used that benefit. For QMBs, which
includes co-payments and deductibles as well for less than 100,
it was a little bit less than two-thirds. These are the most
vulnerable beneficiaries out there. They clearly need a great
deal more help than we are giving them now, and we would
strongly support the legislation that you described in terms of
presumptive eligibility, and would urge that we, frankly, go
further than that.
In terms of chronic illness, that is going to be a major,
major crisis in our health care system, particularly with
regard to Medicare over the next several decades. The fastest
growing segment of our population is over age 85. These are
individuals that have multiple chronic illnesses. The Medicare
is not well suited to handle these kinds of problems, and they
are the ones that these individuals are experiencing. In our
testimony we specified some of the things that can be done to
improve the care for people with chronic illness. My
understanding is that you are going to be introducing a bill
shortly that we are very interested in, in working with the
National Chronic Care Consortium.
Finally, there are some things in the Medicare home health
benefit that we think could help to modernize it, help to
address this homebound issue, which is very inhumane and is
harming lots of beneficiaries. Those are chronic care issues as
well that cry out for Congress to do something about.
Mr. Stark. Thank you very much.
Mr. McCrery. Mrs. Thurman.
Mrs. Thurman. Thank you, Mr. Chairman. I first want to say
something to this panel because I think this is very important.
Even though we did some buy-backs last year, there were many of
us up here--and particularly based on your testimony and the
specificity that you put in your testimony, many of these are
not issues that we have not heard about before; they were also
brought up in last year's testimony and were asked to be acted
upon. So just to say it is a blame here or a blame there, I
think is not fair. That is not what we should be here, and what
we should be here about for. We should be here because we need
to fix this problem, and I think that is where you say
``Amen.'' But none of this is new. I mean, I can remember RUGs,
I remember bad debt, I remember DSH, I remember GME, I remember
payments to HMOs. I mean, we have heard it. So I think we need
to get beyond the blame game.
But I have to go back to some issues though that I would
like to talk to, in particular with my HMO person out here,
Mr.--say your name for me.
Mr. Renaudin. It is Renaudin. Just pretend like the ``U''
is not there.
Mrs. Thurman. Renaudin, Okay. All right, I will try. Mr.
Renaudin--and I appreciate what you have said about the fact
that the HMO Medicare choices were out there on the idea that
you could save money, so therefore you could provide better
benefits. Here is a question or a couple of questions, and you
heard a little of the line of this question in the last time,
that I think is important. The money issue, for number one.
Help me understand this. If I live in a certain part of
Florida--you know, everybody talks about Miami getting $800--
but if I also live there, I also get a better prescription drug
benefit, I get eyeglasses. I might get hearing aids, I might
get these kinds of things. And I pay no premium. If I live in
another part of the state, obviously, maybe the reimbursement
is 500 and something. I am now getting fewer benefits. Probably
mostly what I get is some kind of a prescription drug, and I
pay a premium.
Okay. So you can understand why seniors are a little
concerned that their same Medicare tax that they paid all of
their lives or through their working ages, has now provided
them with a Medicare system that it off balance, or they are
not getting the same thing as somebody else for the same amount
of money that they put in.
But here is the question that I do not understand, that in
some parts of the State of Florida, in areas closely related--
let me just give you an example. In, say for example, in Citrus
County right now we have no HMO. Hernando County just pulled
out their last two. In Citrus--or in Hernando County, in 2001,
they would receive $553.54, you know, and you know how that
goes, it is on a per patient--that is not exactly correct, give
or take this or that change in it. But in Hillsborough County,
which is a county and a half below them, they receive $531.00
in 2001. They stay there, but they pull out. So money cannot be
the only action that is happening out here. So you need to help
me understand, or more importantly, you need to help those
people that you are trying to sell a program to, why this is
happening, and particularly based upon what the Chairman said.
He is not just going to put more money out there. He is going
to require some issues to be looked at. How do I respond to
that? How do I respond to them the Medicare Program works well
because we put everybody in a risk pool, we spread the risk
through 39 million people, therefore, we keep our cost lower
than if--so why would we not do it on a state basis? And also
then, why would we not ask--if we are giving you the money from
the Medicare Trust Fund, why would we not be asking you to give
a commitment to those folks? I mean, those are questions that
are being asked by those beneficiaries who, quite frankly, are
very concerned about what the next step is for them.
And then the last question that I would you is this: even
if we did the $25 billion on prescription drugs, even if we did
some new dollars for reimbursement, would you be able to come
back in to those counties? Do you think there would be a
decision to come back into those counties now that they have
left?
Mr. Renaudin. Mrs. Thurman, let me try to address the
issues one by one. Actually, the last issue you mentioned
refers directly back to your beginning issue. I think that, as
I said in my testimony, there are more than just payment
factors, although payment factors are first and foremost,
because if that is taken care of, then some of the other issues
I will discuss in following up will also be addressed. But I
will try to reach where you are going here.
The fact that the difference that you just mentioned, where
there is a plan in one area that is about 530, I think was the
number you used, and not a plan where there is also a $530
payment, there are many factors that can influence that. I
discussed briefly one of those factors in my oral comments,
which is the provider situation and the provider environment.
That comes into play. And some of the things that affect the
providers, the physicians and the hospitals, are not simply
contracting with the plans. There are many other factors that
impact them as well, some of the things you are hearing them
discuss about the difference in Medicare payments, the fact
that in many states Medicaid also has not kept up with
inflation. So depending upon the payers, depending upon the
designation of the hospital or physician, there may be external
factors that are impacting the type of payment they will demand
from us in order to provide the care.
You have other factors besides just the payment that they
are getting from Medicare, Medicaid, whether or not they are
urban or rural. You have factors impacting them as well. Other
factors beyond that may be competition. The parish where--the
county, sorry--where you do have a plan at 530 may be one--and
I have no idea of the Florida market, so excuse me--but may be
one where you have a couple provider systems. The one where you
said the same payment rate is out there, but you do not have a
plan may be there is no competition among providers. That all
filters through to us. We, as a plan, pull together all the
different pieces of a health care system. So if there are
factors that are impacting any of the people to my right all
along the way, it also impacts us in our ability to contract
with them, in our ability to provide the benefits and services.
So, for example, one of the areas that I am withdrawing
from, unfortunately, in my service area is a county that is
fairly close--it is a little bit west--but fairly close to some
of the counties where I am staying. The difference in that
county is there is a particular provider in that one county
that exhibit amazing monopolistic behavior, and this is not
just shown to the Medicare Program. If you look at the way our
state employee benefits program also, the people insured by
state employees are insured, they actually, if they choose my
health plan will pay somewhere between 30 and $45 more a month
if they live in that particular part of our service area due to
that one hospital.
So there are many factors that--without knowing the Florida
market in particular, that I cannot address all of those. But I
can say in fairness also to my colleagues to my right, that
some of their problems become our problems as well because we
are just pulling it all together. So I do not know if that
addresses the total reason for your situation that you just
mentioned, but that may be part of it.
Mrs. Thurman. If the Chairman will indulge me for just--as
a kind of a response.
Mr. McCrery. Sure.
Mrs. Thurman. But I think that is part of the problem that
we are having out there is, you know, we look at what we have
got to spend on everything. We have been told that we are
actually paying now more for a Medicare Choice than we are for
fee-for-service. I mean, that is what the numbers are, and you
kind of admitted that the numbers under Medicare Choice are
going up at a higher percentage than what we are--at 5.5 for
Medicare fee-for-service.
But here is the problem. When we go to face these folks,
you know, all they think is that you just have to give them
money. It is all about just giving more money, when in fact,
there is a whole lot of other--and it is a very multi-faceted
kind of issue that is going on out there, and I would just beg
of your organizations--and I will be glad to help you with some
of the issues as it deals with regulation, although I think,
quite frankly, we have probably created some of that because my
guess is that HCFA does not write laws on its own, or rules.
They are kind of supposed to follow what we pass up here, but
if there are things that need to be done to get rid of some of
that regulation that may seem nonsensical, that just is not
working, then we need to know that.
But on the other side of that, I really wish that some
would start looking at the whole issue of Medicare Choice and
not just pinning it on the one issue that seems the easiest. It
is kind of like people have said, ``Oh, if you throw money at
education, you can fix it'', and then you hear other people
saying, ``Oh, no, we cannot do that. We have got to do some
real reform up here to make it work.'' I mean I think we are
still--this is applicable in these areas too, and I think we
are just starting some fires out there with all these pullouts
that are not really going to address the problems that are
necessary.
Mr. Renaudin. If I may also respond to the second part of
your question in follow up. The payment differences between the
parishes are the major reason for the withdrawals that I had--
that was one particular parish out of six that it was a
provider issue. So I can tell you from my personal experience
that 5 out of 6 counties it was payment was the issue, not the
provider side.
You also asked a question about the commitment. We would
love--we would absolutely embrace being able to make the same
kind of commitments to the Medicare Plus Choice program as far
as long-term contracts as we do--in my particular state you can
tell where I am going with this by the companies I mention--as
we do with Exxon and Chevron and Shell and Texaco, and so
forth. We have multi-year contracts with them. But what I get
in exchange for those multi-year contracts is a commitment from
them that they will not change the rules as we go through, that
the payment will not be changed as we go through, that, you
know, some of the extra things that would be nice for the
beneficiaries in those plans are not going to happen if they
result in higher cost.
Let me give you a very specific--low-cost, but specific
example of how this happens. I say ``low-cost'' as some
relative terms. We now have to use a mandated schedule of
benefits, and it is a great idea, so that when a senior is
sitting down at the kitchen table, they unfold all the
scheduled benefits among all the plans and they compare them.
That sounds like a wonderful idea, and it is one that we
support. The problem is, just in the past month, month and a
half--I may be off by a couple weeks--there have been four
different versions or editions to that schedule of benefits
that we have had to deal with as HCFA keeps on revising it.
That is something that Exxon or Chevron or Shell would not do.
We would come to the table, we would agree on the schedule of
benefits. It would not be continuously revised, reviewed and
changed as we go forward. So we would, believe me, love to make
the same sort of commitments to the Medicare Plus Choice
program that we make to others. Provide our own plan, it is
part of our mission to do so, but unfortunately, if the rules
keep on changing, you cannot then criticize us for making
changes in our decisions after you have changed the rules.
Mr. Corlin. Ms. Thurman, may I add a response to that,
please?
Mrs. Thurman. You have to ask the chair.
Mr. Corlin. Mr. Chair?
Mr. McCrery. Sure, please.
Mr. Corlin. Thank you. I feel compelled, on behalf of the
AMA to comment on the last response that was made, and to say
there is a bit of disingenuity there
. Those same concerns about changes that go on, and the
fact that they do not like bidding on a contract or making a
long-term commitment to a contract where the clauses may be
changed, that was stated by the representative of the industry
that puts clauses in its contracts with physicians, saying,
``If you want this contract, you must agree to take any
contract we come up with, regardless of the terms, even those
we have not come out with yet.'' So that does cut both ways.
Mr. Renaudin. My plan does not do that, just for your
information.
Mr. McCrery. Thank you, Mrs. Thurman, and thank all of you.
I now have a few questions, and Mr. Renaudin, I am going to
give you a chance to rest for just a second, and go to Mr.
Walker. As you probably know, the GAO testified last week, I
believe, and his testimony, Mr. Scanlon of the GAO, said that
the recent bankruptcies experienced in your industry are
primarily due to poor business decisions, and not on Medicare
and PPS implementation. He claimed that the new Medicare
payment system for SNF services adequately covers the cost of
services, but no longer supports the extensive capital
expansions or the ancillary service business that corporate
chains relied on to boost revenues. I assume you would like to
respond to that assertion. I will give you the chance.
Mr. Walker. Yes, I would. First of all, on the issue of
poor decisions, it is important to understand how we got here.
From 1990 through 1997, we went through demonstration projects
with HCFA jointly throughout the United States. All of the
details of prospective payment of substance were worked out
through those demonstration projects. The industry, including
my company, supported prospective payment. The one issue that
was not worked out was the cost of the non-therapy ancillaries.
Through the last demonstration project ending in 1997, HCFA
said, ``When the final regs. come out, we will add a component
to that payment for non-therapy ancillaries.'' That was as late
as the summer of 1998. On publication that fall, there was no
additional funds for non-therapy ancillaries in the proposed
payment.
Prior to that implementation, my companies and others made
strategic plans on how to phase in business decisions into the
prospective payment system. We looked at pharmacy. We looked at
rehabilitation. We looked at long-term care. And we selectively
built elder-care health care networks on the East Coast to the
United States, eliminating excessive cost and reducing the cost
of care to the payors.
When those final regs. were published, there was a 25-
percent reduction in the payment rate. The expected reduction
was less than 20 percent. The changes in utilization that
occurred at the same time, because it changes to the hospital
payment systems, penalties for early discharge, forcing
hospitals to be afraid to discharge early, keeping people
longer, caused occupancies to drop throughout the long-term
care industry. So not only did you get a reduction in rate, you
got a reduction in utilization. I think if you look throughout
the country today, you will see occupancy rates down 3 to 5
percentage points. That is because of the lower payment and
because of the longer stays in hospitals. And if you go into my
primary marketing areas, Southeastern Pennsylvania, Wilmington,
Delaware, you will see hospitals have no beds available today.
So I would tell you, we incurred the debt and raised the
capital--and by the way, the capital we raised to do those
things was 50 percent equity and 50 percent debt. We did not
rely totally on debt capital. Our cash flow before PPS was over
$400 million a year. It went down to 220. We cut over $100
million in costs out of the system. Nobody expected the
devastation created by the lack of full disclosure by HCFA. And
you may think I am blaming somebody. I do not intend to. I am
just stating the facts. That is what happened.
You go back to Mr. Scanlon's comments about a fair payment.
Well, I would like to--from memory, if I can do it, but I may
have the piece of paper here--describe to you the payments and
the use of the dollars, and I will try to make it as simple as
possible. Nursing homes spend 80 percent of the revenue dollar
before PPS on salaries, wages and supplies, 5 percent on
overhead. That means filling out the cost reports, buying the
goods and services, human resources, but administrative task.
So we have 15 percent left of the payment rates to pay for
everything else. The cost of working capital--in a nursing home
you do not get paid for 90 days--$1.5 million on 120 beds. It
costs 3 cents to finance the working capital if I can get
somebody to lend me the money. The cost of reinvestment in the
physical plant--I have to continue to restore the physical
plant because it is used up--costs me about $500 a bed. Every 5
years I have to put in a complete facility renovation on the
interior. The total cost is about 2 cents. I am not down to 10
cents left. If you built a $50,000 nursing home bed in this
nation today, and you financed it 100 percent with debt
capital--which is not possible--it would cost you 16 cents. If
you add up those numbers, I am minus 6 cents before the
implementation of prospective payment. Now, those providers who
really serve the Medicare population--and I would include
Genesis in that category--we have double and triple the amount
of Medicare patients in our system that the industry does
overall. 25 percent of our revenues come from Medicare. We
receive a reduction of $400 to about $300 as a result of PPS.
That is a 25 percent price reduction. A 25 percent price
reduction on 25 percent of your revenues results in a 625 basis
points reduction in your margin. So now I am losing well over
10 cents.
Mr. Scanlon, I do not truly believe, understands the
financial implications of long-term care. Those providers who
did not serve the Medicare population, who did not have
distinct parts, who did not have the infrastructure in place,
that price increases at one or two or three patients in a
building. But those providers who really stepped up and built
the infrastructure got whacked right across the side of the
head. Over 200,000 Medicare beds are in bankruptcy today. That
cannot be because five chief executive officers made bad
decisions. Remember, I had a hundred bankers and a hundred
credit staffs. Not only did I have bank lenders, but I had
investment bankers. When we did those transactions, we were
reviewed inside and outside by hundreds of Committees. They are
not all dumb people. They all read the same information that I
read and made the same decisions. The information was flawed.
Mr. McCrery. Well, thank you. I thought you might want to
have a few words in response.
Mr. Walker. Thank you. You can ask a few more.
Mr. McCrery. Mr. Richey, there seems to be a pretty general
agreement that our rural hospitals, primarily I guess because
they have fewer private pay patients, are most threatened by
reductions in Medicare reimbursement. What specific proposals
does AHA have to remedy the fragile condition of rural
hospitals?
Mr. Richey. Well, you are absolutely correct, sir, Mr.
Chairman. One of the major problems in the rural sector is you
do not have the number of commercial insurance payors that you
would in an urban setting, and therefore, the reliance on the
Medicare and Medicaid patients are significantly higher. We
have a rural relief package that we would urgently suggest that
this Subcommittee pass on. We would also ask for protection of
Medicare, and particularly for the rural hospitals, Medicaid
disproportionate share funds. They rely, in large parts on both
Medicare and Medicaid disportionate share payments to make
their entire bottom line. Then, likewise, the same issues that
the urbans are seeing with home care are a major problem for
them, and the SNFs. With fewer nursing homes available, the
rural hospital tends to have to be the provider for the vast
majority of services.
Mr. McCrery. Unfortunately, Medicaid is not in the
jurisdiction of this Committee, but we will pass your
suggestion on. You did say you had a packet though of materials
that I am sure you will share with us on specific
recommendations for rural hospitals, and we appreciate that.
Dr. Corlin, much of your testimony focused on HCFA's
antifraud efforts, and while I sympathize with the thrust of
your testimony along those lines, I am sure you sympathize with
our concern about fraud in the Medicare system and ferreting
out that fraud.
Dr. Corlin. Absolutely.
Mr. McCrery. So how can we best balance the public's
interest in insuring the Medicare dollars are being spent
wisely with a physician's right to privacy, and more important,
to due process?
Dr. Corlin. Thank you, sir. First of all, I agree very
strongly that we have got to be as vigilant as we can in
dealing with issues of fraud. In going through that whole
process there are several points that I think can be improved.
First of all, we are told as physicians and as medical
associations that what physicians should do, is if there is a
question about billing, to find out what is the right code for
this? Forget for a moment the E&M guidelines that were
disastrous that were put out--we will get to that in a moment--
if there is a question about billing, the physician or the
physician's billing clerk should call the local intermediary
for Medicare, the carrier, and ask for advice, and preferably
try to get it in writing, and that if you get the advice at
all, it will be helpful in guiding you. If you get it in
writing from the carrier and you are then subsequently audited,
you can use that written response from the carrier, if you are
complying with it, as the standard to which you will be held.
But, you cannot get written responses from the carriers. They
will not provide them. Many times if you call them, they will
not even tell you--the clerk you are speaking to will not even
tell you their name in order to verify on July 23d I called and
I spoke to Mary Smith, and she told me. You cannot get the
clerk's name you are speaking to.
So the issue of informing the physician to answer questions
cannot be done. There is virtually no funding available and no
programs available for physician education in proper billing
and coding. The AMA would love to be involved in a HCFA-funded
project for physician education in coding. There are a lot of
private coding consultants out there whose total goal is to
give a course, ``How can you maximize coding'', whether or not
it is the right way of doing it. We would like to see education
done properly. That is one issue.
Second, a post payment audit, as I indicated in my
testimony, is often the first indication that there is any
problem at all, and the example I gave of the cardiologist in
California is one. How can one doctor, one doctor, who gets a
clean bill of health on an audit, 1 year later be told that he
owes $175,000 when nothing is done differently at all? Once
that statement for recapture of money comes out, if you want to
deal with it and pay it to get rid of it administratively, the
only way you can do it is to waive all your right to appeal. If
you wish to appeal, you have to got to go through an extremely
onerous process, and I would point to the results of that
process as evidence of the fact that what HCFA is doing is
wrong. Of those claims that go to the administrative law judge
for hearing, 70 percent are found in favor of the physician
that the intermediary has done the audit wrong.
The entire process is flawed. We are not opposed to
anything to detect fraud. We are not opposed to anything to
detect abuse. We want to have more education in the system. But
the specifics of the mechanics as to how we got there, as to
how we get there in that system, are just plain wrong,and we
want to have that corrected. The reason you have so much
opposition from physicians is that we are frustrated. We are
used to working off of a database in how we deal with our
patients. It is a changing database to be sure, but it is a
database. In dealing with HCFA about questions as to how do I
bill, what is the right code, we cannot get the right answers
to know how to do it up front.
And one final point, sir, and this has to do with the E&M
coding mess that HCFA is currently revisiting. You heard a lot
of physicians and a lot of groups complaining about the amount
of time that was necessary and the excess documentation that
was necessary and how burdensome it was. That is one aspect of
it. There is another aspect of it that concerns me more. I am a
gastroenterologist. We have a high-intensity practice. We see a
lot of acutely ill patients, many of whom are in intensive care
units, treated by four or five different people, cardiologists,
pulmonologists, infectious disease specialists and so on. The
requirements for documentation are such that the standard
shorthand that physicians always used is no longer considered
acceptable. When I go into an intensive care unit and look at a
patient's chart, the last 2 days' progress notes may be 12
pages of notes, whereas they used to be 2-1/2 or 3 pages of
notes. There is no more information in it; there is just the
same information repeated redundantly by everyone over and over
and over because it is a HCFA requirement. That impedes the
delivery of good quality medical care, because if I get called
in there and the patient started to hemorrhage and I need to
assess things in a hurry, I cannot go through 12 and 15 and 20
pages of notes. I need to be able to go through a couple of
pages of notes and find out what is going on, particularly if
those notes just repeat things.
And I was at a meeting with Dr. Berenson last week. We
discussed that. He acknowledged that HCFA is aware of it. We
will wait to see if anything happens. Yes, documentation for
the level of service billed for, that it was delivered,
absolutely, but when that documentation gets to the point that
the chart becomes virtually illegible based on its volume, the
patients are being hurt, not helped.
Mr. McCrery. Thank you. Mr. Renaudin, I appreciated your
comments about the reimbursement rates and the way they vary
from parish to parish or county to county, and I am not going
to dwell on that, but suffice to say that I think the formula
that is used is not the best we could come up with, and it does
result in, I think, inequities. Certainly in my state we have
seen those inequities very clearly, demonstrated by the fact
that now in North Louisiana we do not have any Medicare HMOs.
Ochsner was the only one, and it is gone. And you cannot
convince me that in Shreveport, Louisiana it costs $100 or more
less per patient to treat somebody than it does in Baton Rouge,
Louisiana or even New Orleans, Louisiana. And yet, the
methodology that we use to determine what a managed care plan
gets reimbursed results in just that, and that is nuts. So, I
appreciated your comments on that.
Mr. Crane asked me to follow up with you, Mr. Renaudin, on
a question that he asked Dr. Berenson earlier, and that is
concerning the discrepancy between the published rate of
reimbursement and the actual reimbursement. Would you have any
idea as to why that discrepancy exists and expound upon it if
you do?
Mr. Renaudin. I can, and if I get too detailed, please let
me know.
There are large sets of charts that come out with that
published rates, and those large sets of charts have to do with
all the different factors that you then take away or sometimes
add to that published rate. They vary from age, sex,
institutional status, ESRD status, whether or not they are an
institution, whether or not they are Medicaid dual eligible.
There are--then there is a whole other set of facts for ESRD
rates. So there are a large set of factors that come into play,
and then you add on top of that some additional things that
have happened since BBA. For example, the Community Education
Assessment Fee, which the BBRA wanted to try to make some
change to and has done so, but it is still there to some
extent. So you have that fee that is added on to it. You have
the automatic--you have some other adjustments that are added
to it as we go forward. Also, those numbers that we give you,
the actual payment rate that we receive, now, those payments
change every month based on all sorts of dynamic things that go
on.
To give you an example of a huge change that can happen,
and this happens sometimes going back years, up to 3 years, in
August of last year, we had suddenly, almost--I believe it was
2 million; don't hold me to the number, somewhere around
there--taken away from what we normally expect to get that
month. And the reason is, they took back that amount of money
because of what they called a working aged adjustment. It
appears to--in somewhere in one of the HCFA files that was out
there, that we were getting paid more than we should have
because we had a large number of people who were actually
working age, and for your information, those are folks who
still have insurance provided through an employer. So the
theory behind it is since they have some insurance provided by
employer, pay us less because they are getting some
supplementary coverage elsewhere. And that is correct. The
problem is, I believe there are three, maybe four different
databases that HCFA uses to determine whether or not we have a
working aged member. And what happened, a phenomenon that
happened across the country, HCFA suddenly updated from some
other database--we still do not know which one--that working
aged adjustment. So they went back and took back money for 3
years, for 3 years, from members that we did not think were
working age, but they thought were. Now, what we found out
since, and we spent a lot of money and consulting fees and
other database fees to find out, that the vast majority of the
take-back was not true.
So there are all sorts of factors that come into play, but
the major ones are the ones that Mr. Berenson did mention. The
demographic adjustments and the risk adjustors are the big
factors. But the idea that that is simply a fact of getting a
healthier population may not necessarily be true. If the
average age of a beneficiary in a particular parish is 75, and
we are getting them at 72, by age alone you would say they are
healthier, but that may not be true, because one of the things
impacts--for instance, Ochsner is a large transplant facility.
One of the things that impacts us to some extent is how many
transplants we give, and the older you are generally--I am not
a physician, so excuse me--you are not eligible for a
transplant. So some of those younger members, who by age may
look healthier, are actually possibly receiving much higher-
intensity care services, and because of Ochsner and our
reputation as a coronary care facility, we do get a larger
share of transplants than I believe most of my competing plans
do, and in fact, I do have evidence, because the maid of honor
in my wedding is a social worker in the transplant area at
Ochsner, and they all automatically, if someone gets on the
transplant list, try to get them eligible for Medicare to get
them on my plan so they do not have to pay high deductibles and
co-insurance. So the adverse selection does happen to us in
some instances. Maybe we are a rare bird because of a
transplant facility, but it does happen, and that is not taking
into consideration when you hear the comments about, ``Oh,
well, they are getting healthier populations.''
Mr. McCrery. Thank you very much. Ms. Thurman?
Mrs. Thurman. Okay. Actually, I just wanted to bring to
your attention--because when you had talked to Mr. Richey about
the hospitals and he said there was a package, I actually have
submitted the Florida Hospital Association, and if you turn to
page--let me see if I can find it--on page 4 they have actually
put down ``action needed.'' And we also wanted to present this,
particularly from a perspective of a high--and we heard some of
this earlier from the panel--the high amount of Medicare
beneficiaries that we have in the State of Florida, which is
disproportionate to exactly what you had mentioned in coverage
of spreading that risk out over private paid and other folks
within a system, so I think you will find that very
interesting, so I just wanted to let you know that we had
submitted that or would like to submit that for the record
along with the testimony from the other folks here today. And I
just need to make----
Mr. McCrery. Without objection.
[The information was not received at the time of printing.]
Mrs. Thurman. If I can say just one thing on this other--I
want to tell you that my mother is under home health care right
now through Medicare, and I have to tell you, it took me a
while to get some kinks worked out, but in saying that, I think
you do have some very caring people in your system, and I would
hate to lose the ability for people to stay in their home, but
I would like to talk to you about coordination of Medicare home
health care, as well as with paid private, because I think
there are some things that we could be doing for families out
there if we could coordinate times for when they could come in,
and juggling, and would save some money for families who are
trying to provide that care, because there is some big overlap
there, that I think if we could figure out a way to do it, that
I would certainly like to sit down with somebody and work on
that, because I have found that to be just so awkward, and my
schedule is not easy. And I am trying to provide her 24-hour
care, and it is very costly, and I do believe there are some
things we could be doing that would offset a little bit of
that.
And, Mr. Bedlin, I actually turned to my staff when you
talked about the homebound. I think that is absolutely crazy.
Because if I take my mother out--and I can assure you, I cannot
cut hair, nor would you want me to--but just to even take her
to go to a place to have her hair cut could potentially put her
Medicare benefit at home in jeopardy. And I have to tell you,
for somebody who has gone through what she had gone through,
and be told that she has to have her daughter cut her hair, and
she just wants to look nice, you know, for her cousins that are
coming to visit, and that could jeopardize her, I think we have
done an awful, awful situation to our seniors who are put into
that situation, so I tend to agree with you on your issue on
homebound, and I will look forward to working, and maybe this
year we will have a debate on these issues and not be told that
if you talk about it, it will not get in the bill. Thank you.
Mr. McCrery. Thank you all very much for your patience
today and your excellent testimony and response to questions,
and we look forward to working with you to further nurture this
Medicare, this lovely government Medicare system that we have.
Thank you. The hearing is adjourned.
[Whereupon, at 5 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of American Association for Homecare, Alexandria, VA
The following statement is submitted to the House Ways and
Means Subcommittee on Health on behalf of the American
Association for Homecare. The American Association for Homecare
(AAHomecare) is a new national association resulting from the
merger of three national home health associations--the Home
Care Section of the Health Industry Distributors Association,
the Home Health Services and Staffing Association and the
National Association for Medical Equipment Services. AAHomecare
is the only association representing home care providers of all
types: home health agencies and home medical equipment
providers, be they not-for-profit, proprietary, facility-based,
freestanding or governmentally owned. AAHomecare is pleased
that the Subcommittee is addressing the dramatic impact of the
Balanced Budget Act of 1997 (BBA'97) on home health.
HOME CARE IS THE ANSWER
Homecare is pleased to report that home health care has
benefited from an explosion of new and emerging technologies.
These breakthroughs are allowing Americans to receive a vast
array of complex therapies in the setting that they most
prefer--their own homes. From the use of space-age materials to
make wheelchairs and mobility aids lighter, to the application
of micro-chip computer technology in implantable devices used
to dispense critical medication, technology makes it possible
for the care received in the home to equal or exceed that
received in a hospital, at a fraction of the cost. Today, it is
common for a Medicare beneficiary to undergo chemotherapy in
the comfort of his or her own home, a feat that was
inconceivable just a few years ago. In the future, advances in
tele-medicine and similar technologies will make it possible to
further reduce health care costs and improve the quality of
care for people who receive care in the home. None of these
advances could have been envisioned at Medicare's inception in
1965.
Not only is homecare patient-preferred, numerous studies
\1\ have shown that home care providers are a cost-efficient
component of the healthcare delivery system. One study
conducted by the Hudson Institute, an independent research
organization, particularly demonstrates these savings. This
study, The Cost Effectiveness of Home Health Care, examines the
highly successful In-Home/CHOICE program instituted by the
State of Indiana in 1985. Indiana provides 100% of the funding
for this program, which covers the costs of home health care
for qualified residents in need of long-term care in order to
prevent unnecessary institutionalizations.
---------------------------------------------------------------------------
\1\ For recent studies, please see:
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Styring, William & Duesterberg, Thomas, The Cost
Effectiveness of Home Health Care: A Case Study on Indiana's In-Home/
CHOICE Program, (Vol. 1, No. 11), November 1997, (Hudson Institute,
Indianapolis, IN).
Mann, Williams C. et al, ``Effectiveness of Assistive
Technology and Environmental Interventions in Maintaining Independence
and Reducing Home Care Costs for the Frail Elderly,'' Archives of
Family Medicine, May/June 1999 (Vol. 8, pp. 210-217).
The authors of the study note that the coming crisis in
health care funding for America's rapidly growing elderly
population could be alleviated by home health care programs
such as Indiana's. By avoiding institutionalized care, Indiana
was able to reduce inpatient caseload costs by 50% or more,
while allowing patients to receive care in the comfort of their
own homes. The cost saving associated with this increased
reliance on home care was considerable. The study states that
home care for the elderly in Indiana can be provided for one
half the cost of skilled nursing facility care. In addition,
the quality control and screening procedures used in the
Indiana program have successfully avoided problems with fraud
and abuse. The Hudson Institute Study concludes that ``Properly
crafted and administered, home health care can play a critical
role in helping society meet the looming health care needs of
the 'Baby Boom' generation.''
ACCESS TO HOME HEALTH HAS BEEN SEVERELY COMPROMISED
Unfortunately, as the possibilities for home care are
advancing, access to the Medicare home health benefit has been
severely compromised. No other health care provider group has
been as negatively impacted by the BBA'97 as home health
providers have. The Congressional Budget Office (CBO)
originally estimated that the BBA'97 would reduce spending for
the home health benefit by approximately $16.1 billion over
five years. However, the actual impact of the BBA'97 was much
more dramatic. CBO recently revised their estimate to a
reduction of $70 billion over five years, more than four times
the original estimate. In March 2000, the Congressional Budget
Office (CBO) announced that home health services had a rate of
growth of -35%, less than any other health care sector.
The CBO recently stated that the ``larger-than-anticipated
reduction in the use of home health services'' was the primary
reason total Medicare spending fell 1% in fiscal year 1999.
Likewise, according to the American Hospital Association's Year
2000 Lewin Study, the BBA '97 has reduced hospital-based home
health services by 30.5%--the largest reduction of any hospital
service.
Unfortunately, these dramatic reductions in reimbursements
have an inevitable impact on the availability of the home
health benefit. The George Washington University's Center for
Health Services Research & Policy has released two studies
reviewing the impact of BBA'97 on home health patients and
providers. The studies show that the number of Medicare home
health patients has declined by 50% from 1994 levels. Patients
who were most likely to lose access to covered services
included those suffering from chronic and complex conditions
(e.g., diabetes, congestive heart failure, multiple sclerosis,
and wound care patients). Sixty-eight percent of hospital
discharge planners reported increased difficulty in obtaining
home health services for Medicare beneficiaries. Fifty-six
percent of the discharge planners reported increases in the
number of beneficiaries requiring substitute placements,
primarily in skilled nursing facilities, in lieu of home health
services.
STOP FURTHER CUTS TO THE HOME HEALTH BENEFIT
AAHomecare urges the Subcommittee to stop the decimation of
the Medicare home health benefit by eliminating the additional
15% payment cut scheduled to be implemented on October 1, 2001.
This cut has no basis in public policy and was included in the
BBA'97 as a scoring mechanism. Clearly, home health has
contributed its fair share of Medicare cuts and the need for
the 15% reduction no longer exists. However, the threat of the
additional 15% reduction continues to exacerbate the access
problems described above.
The continued expectation of the 15% cut does not allow
home care providers to begin to recover from the devastating
impacts of the BBA'97. In fact, a mere delay will only prolong
the existing access problems. Home health providers can not
take the financial risk of accepting sicker, costlier patients
or making home health services available in rural areas when
they are planning for an additional cut in funding that is
already inadequate. Additionally, home health agencies will not
be able to expend the resources needed to sufficiently prepare
for PPS while an additional dramatic reduction lurks in the
future. Many agencies are finding that they can not secure
loans needed for the transition to PPS because lending
institutions are leery of the financial viability of home care
providers. For these reasons, AAHomecare urges this
Subcommittee to support the full repeal of the scheduled 15%
cut and further funding for rural agencies and an increase in
the outlier payment for high-acuity patients. All five national
home health associations support these priorities.
HOME MEDICAL EQUIPMENT
Home medical equipment (HME) providers supply medically
necessary equipment and allied services that enable
beneficiaries meet their therapeutic goals. Pursuant to the
physician's prescription, HME providers deliver medical
equipment and supplies to a consumer's home, set it up,
maintain it, educate and train the consumer and caregiver in
its use, provide access to trained therapists, monitor patient
compliance with a treatment regimen, and assemble and submit
the considerable paperwork needed for third party
reimbursement. Specialized home infusion providers manage
complex intravenous services such as chemotherapy in the home.
HME providers also coordinate with physicians and other home
care providers (e.g., home health agencies and family
caregivers) as an integral piece of the home care delivery
team.
The BBA'97 instituted a freeze on the annual inflation
adjustment for Medicare's durable medical equipment (DME) fee
schedules. In addition, the BBA'97 cut reimbursement for home
oxygen therapy by 30%. These cuts have had a dramatic impact on
a market dominated by small, mom-and-pop providers. AAHomecare
members report that there has been a dramatic increase in bad
debt and an unprecedented number of bankruptcies since 1997.
The larger, national HME provider chains have also been
reeling from the impacts of the BBA'97. PriceWaterhouseCoopers
(PWC) recently updated a 1999 survey of nine publicly held HME
companies. PWC observes that all nine companies were earning a
positive net income in 1996, and by 1999 two-thirds of these
companies were losing money, bankrupt or out of business. This
dramatic reversal occurred during a period where the average US
corporate profit margin rose by 18%. One national company laid
off 1,471 out of 6,000 employees in the past 24 months and
closed 30 branches that served Medicare beneficiaries. During
this period, the equity value of this company's stock fell by
nearly $1 billion. Another national HME provider laid off 350
employees and closed 65 branch locations and its shareholder
value fell $237 million. This company's stock fell so much the
company was delisted from the NASDAQ stock exchange.
At the same time that HME providers have been adjusting to
the loss of the annual inflation adjustment, costs have been
skyrocketing. Certainly, when the freeze in payments to HME
providers was enacted, no one could have foreseen the recent
dramatic rise in fuel prices. These increased costs
disproportionately impact the HME industry whose main function
is the delivery and in-home maintenance/refill of medical
equipment. In addition, recent increases in labor prices have
also impacted this staff-intensive health care sector.
In order to recover from the destabilization caused by
rapidly increasing costs and declining reimbursements,
AAHomecare asks you to restore the full cost of living (COLA)
adjustment for HME providers in fiscal years 2001 and 2002. By
restoring the COLA, you will enable HME providers to begin to
rebuild and continue to provide high quality in-home medical
services.
INHERENTLY REASONABLE?
AAHomecare remains concerned that the Health Care Financing
Administration's (HCFA's) implementation of the expanded
inherent reasonableness (IR) authority granted in the BBA has
been based on shoddy research, superceded Congressional intent,
and will ultimately threaten beneficiary access to quality
medical equipment services. AAHomecare urges this Subcommittee
to require a few budget-neutral changes to the expedited IR
authority to make it viable.
In 1985, HCFA was granted the authority to alter Medicare
reimbursements for durable medical equipment, prosthetics,
orthotics and supplies (DMEPOS) through the IR authority. This
authority allowed HCFA to adjust reimbursements for individual
items and services if the payments are found to be grossly
deficient or excessive. A BBA'97 provision (Section 4316)
granted HCFA a greatly expanded IR authority to adjust DMEPOS
reimbursements by as much as 15% each year without industry
consultation, publication in the Federal Register, or public
comment. HCFA and the Durable Medical Equipment Regional
Carriers (DMERCs) quickly announced planned IR reductions for a
number of DMEPOS items. AAHomecare remains concerned about the
arbitrary nature of these reductions, the lack of sound
evidence for the reductions, and the apparent violation of the
15% threshold established in the BBA'97.
The Balanced Budget Refinement Act of 1999 (BBRA, P.L. 106-
113) contained a provision (Section 223) that required HCFA to:
``(1) reevaluate the appropriateness of the criteria included
in the interim regulationa... and (2) take appropriate steps to
ensure the use of valid and reliable data when exercising the
authority.'' In addition, the report language states that the
IR authority should ``be administered judiciously and applied
only after public concerns and suggestions about proposed
administrative criteria have been openly addressed.''
A recent General Accounting Office GAO report (GAO/HEHS-00-
79) has described the data collections techniques used by the
DMERCs to support their proposed reductions as ``deficient,''
``inconsistent'' and ``inappropriate.'' In fact, the GAO
confirms the industry contention that the DMERCs failed to
determine what type of enteral formula is covered by the
Medicare Program prior to announcing planned cuts based on
faulty data. Not only did the carriers collect data on the
wrong items, they failed to use a standard survey technique.
The GAO dubbed the data collection efforts ``judgmental'' and
``less rigorous,'' and listed a number of deficiencies in the
survey process. For instance, the GAO states that the DMERCs:
``did not choose their sample in a consistent way,
nor did they set sufficient criteria so that we [the GAO] could
be assured that the locations sampled represented retail prices
nationally.'' (p.21)
``did not follow a consistent methodology, leading
to differences in how they collected an analyzed retail
prices...'' (p.21)
``did not establish criteria to define populous
state, less populous state, urban area, and rural area, and
consequently each DMERC used different criteria in selecting
locations.'' (p.22)
``did not develop a consistent set of survey
questions to use when they requested prices from retail
stores.'' (p.23)
did not ``fully consider the geographic
distribution of Medicare beneficiaries.'' (p.22)
``The DMERCs did not consider relative prices in
the localities from which they sampled.'' (p.22)
Despite these inadequacies, HCFA officials have indicated
that they plan to move forward with IR reductions for a number
of items of DMEPOS, regardless of the above mentioned problems
with their data. AAHomecare urges Congress to insist that the
Medicare Program go back to the drawing board. We hope that
your Committee will again insist that reimbursement adjustments
be based on consistent, reliable data.
In addition, AAHomecare urges Congress to restrain HCFA
from superceding the 15% authority granted in the BBA'97. As
you are aware, the BBA outlined specific notice and comment
guidelines for Medicare to follow when enacting payment
adjustments over 15%. AAHomecare suggests that by including the
legislative language addressing the process for implementing
adjustments greater than 15%, Congress was expressing its
intent for HCFA to follow this process. We are disappointed
that HCFA has decided not to meet this requirement and ask this
Subcommittee to reiterate its original intent.
MEDICAL SUPPLIES IN PPS
AAHomecare is also concerned about the bundling of nearly
200 supply codes into the home health agency (HHA) prospective
payment system (PPS) base rate. AAHomecare maintains that the
bundling of non-routine medical supplies into the HHA PPS rate
and consolidated billing for medical supplies ignore the
inherent complexities of the home health market and threaten
the continuity of needed medical care. AAHomecare urges
Congress to remove non-routine medical supplies from the home
health PPS rates and to eliminate consolidated billing for
these supplies. Importantly, this adjustment to the PPS would
be completely budget neutral.
To illustrate the problem with the supply issue, consider
the case of a Medicare beneficiary with an ostomy for a urinary
bypass who is receiving HHA services for a broken hip. The HHA
would provide therapy and aide services for the hip while the
beneficiary is self-sufficient in his/her ostomy management.
The HHA plan of care may not address the beneficiary's need for
supplies such as drainage bags, nighttime drainage bottles,
tubing, adhesives and cleaners. In addition, the HHA
professionals meeting the acute care needs of the beneficiary
may not provide any services related to ostomy care. In this
case, the chronic condition would be incidental to the HHA
services required. However, bundling and consolidated billing
would require the company providing the ostomy supplies to
cease serving the beneficiary and make the HHA responsible for
the supply function. This change in medical supply providers
may be unnecessarily burdensome for the beneficiary--especially
if the supplies offered by the HHA are substantially different
or incompatible with the equipment and supplies provided by the
existing supplier.
In addition, the bundling of supplies into the PPS rate
threatens to cause a great deal of confusion and a dramatic
rise in billing errors. Currently, there is no way for a HME
supplier to be notified when a beneficiary with chronic supply
needs enters the plan of care of a HHA. However, if
consolidated billing and bundling go into effect, any HME
provider who submits a claim for supplies with a date of
service coinciding with a HHA plan of care would violate the
False Claims Act (FCA). An HME provider who runs afoul of the
FCA is liable for treble damages and up to $10,000 in fines per
improperly billed claim. Understandably, the inherent risks
associated with bundling and consolidated billing may cause HME
providers to become reluctant to serve beneficiaries with
chronic supply needs.
CONCLUSION
Home health care continues to evolve to meet the
increasingly complex needs of today's Medicare beneficiaries.
By capitalizing on technological advances, home care providers
have the potential to conduct increasingly complex medical and
therapeutic regimens in the comfort of beneficiaries' own
homes. Not only will these advances serve the needs and
preferences of the Medicare population; they will reduce
Medicare expenditures by avoiding costly institutionalizations.
We urge this Subcommittee to recognize the many benefits of
home care by strengthening Medicare's commitment to home
health.
AAHomecare asks that you acknowledge the contribution that
home health agencies have made to Medicare cost containment by
permanently eliminating the pending 15% cut in reimbursement.
Further, you should restore the annual cost of living
adjustment for home medical equipment providers. In addition,
we urge you to continue the needed oversight of the
implementation of the IR authority granted in the BBA'97. You
should insist that HCFA and its carriers implement a sound
costing methodology that uses statistically reliable data.
Finally, in order to ensure a continuity of patient care, avoid
unnecessary billing confusion, and ease the transition to a PPS
system, we urge this Committee to remove the requirement that
non-routine medical supplies be included in the PPS rate and
eliminate consolidated billing for these supplies.
Again, thank you for the opportunity to provide this
statement. Please feel free to contact Erin H. McKeon with any
questions or comments regarding these issues.
Statement of American Association of Blood Banks, America's Blood
Centers, and the American Red Cross
Technological Advances Make Today's Blood Supply Safer than
Ever
Recognized by Congress, the American Public, the Federal
government and the blood banking community, patient access to
the safest possible blood supply is a national public health
priority. The blood banking and transfusion medicine
communities work diligently to assure that safety improvements
are implemented in a timely manner. Two recent initiatives have
been introduced to increase the safety of the blood supply.
However, these measures significantly increase the cost of
blood products and services for both the hospital and the blood
bank. They are:
New infectious disease testing: Nucleic acid
(gene) amplification testing (NAT) allows for early detection
of infectious diseases (such as HIV and hepatitis C (HCV)) in
blood by detecting the genetic material of viruses. More than
90 percent of all blood components in the United States are
currently tested by NAT under an FDA-approved investigational
new drug protocol (IND). In the first 15 months of
implementation, NAT testing has detected and intercepted four
HIV-positive donations and more than 57 HCV-positive donations.
This means that roughly 150 potential HIV and HCV infections
were prevented as a result of NAT.
Leukoreduction technologies: Several studies have
shown that removing the leukocytes or white cells from blood
components can reduce the frequency and severity of
complications from blood therapy. One process, known as
leukoreduction, has the potential to shorten the duration of a
hospital stay for patients who receive blood. FDA has indicated
that it will require universal leukoreduction of all blood
components in the near future.
These important safety improvements are costly. Universal
leukoreduction and NAT are estimated to add over 40 percent to
the cost of blood. In the future, additional life-saving
technologies, such as viral inactivation, are likely to add to
the cost of transfusion therapies.
Not-for-profit Blood Centers and Transfusion Services Cannot
Absorb Added Costs
Not-for-profit blood collection centers operate in the same
managed care environment as our hospital customers. As a
result, blood centers must charge hospitals for the blood
products and services we provide to recover the costs
associated with collecting, testing, processing, storing and
distributing blood for patients in need. Hospitals, in turn,
must get timely reimbursement for these life-saving and life-
enhancing products and services. Currently, there is a lag of
up to three years between the time that an FDA-recommended
procedure is implemented and the time the hospital is
adequately reimbursed.
Legislation to Provide Fair Reimbursement Needed to Ensure
Patient Access to Highest Quality Blood Therapies
Fair and adequate Medicare reimbursement is necessary to
ensure patient access to the safest possible blood.
Unfortunately, the current system by which the Health Care
Financing Administration (HCFA) determines inpatient
reimbursement rates does not account for these safety
improvements in a timely manner.
In 1999, Congress and the Administration acknowledged the
importance of supporting blood safety advancements through fair
Medicare reimbursement in the outpatient setting. However, the
vast majority of blood is supplied in the inpatient setting.
Thus, it is critical that inpatient reimbursement policies also
be adjusted to reflect increases in the cost of these products
and services.
LEGISLATIVE PROPOSAL: Recognizing the importance of patient
access to a safe and adequate blood supply, Congress should
enact legislation that assures fair Medicare payments for
inpatient blood products and services. The American Association
of Blood Banks, America's Blood Centers and the American Red
Cross strongly urge Congress to adopt legislation that:
Increases the Medicare hospital inpatient ``market
basket'' by 0.45 percent to cover the added costs associated
with recent blood safety enhancements that are FDA recommended
and/or adopted as the standard of care. This increase should be
provided on an annual basis until a longer-term remedy is
implemented (see below); and
Directs HCFA to develop a specific mechanism in
the hospital market basket to account for changes in costs for
blood and transfusion therapy-related products and services
from year-to-year. HCFA should be directed to develop this
mechanism within one year of the legislation's enactment.
The American Association of Blood Banks, America's Blood
Centers, the American Red Cross and the American Hospital
Association support this legislative proposal, in addition to
separate legislation (S. 2018 and H.R. 3580) to restore
excessive Medicare inpatient payment reductions, as a means of
ensuring hospitals have adequate resources to cover blood
safety enhancements. Together, the market basket increases
called for in these two legislative proposals are notably less
than the market basket adjustments recently recommended by the
Medicare Payment Advisory Commission (MedPAC). These increases
are necessary to restore adequate payment to hospitals, which,
in turn, will ensure patient access to state-of-the-art blood
products and services and the safest possible blood supply.
Statement of the American Association of Orthopaedic Surgeons (AAOS)
The American Association of Orthopaedic Surgeons (AAOS),
representing 16,000 Board certified orthopaedic surgeons,
appreciates the Subcommittee on Health of the Committee on Ways
and Means for holding hearings to address further refinements
of the Medicare program. We would like to offer our perspective
on select issues related to implementation of the many changes
under the Balanced Budget Act of 1997 (BBA) and make specific
recommendations for consideration as amendments.
Practice Expense Adjustments
The Health Care Finance Administration's (HCFA) failure to
comply with BBA mandates pertaining to the ``practice expense''
component of the Medicare Physician Fee Schedule has seriously
impacted patient care. The current methodology and data does
not accurately reflect physicians' actual practice costs. As a
result, reimbursement rates are seriously distorted and
fundamentally unfair.
In 1994 Congress directed HCFA to change the way Medicare
pays for physicians' practice expenses. Concerns with initial
proposals presented by HCFA on how to proceed prompted Congress
to intervene and include detailed instructions for developing
practice expense relative value units (PE RVUs) in the BBA. Now
at the halfway point, the new system is to be fully implemented
in 2002.
Practice Expense Recommendations
HCFA has acknowledged the difficulty in determining actual
physician expenses associated with providing services to
Medicare patients. Budgetary constraints have only compounded
this problem. The AAOS believes that the budget surplus
presents an opportunity to ensure mandatory obligations to
increase reimbursement for primary care office services while
ensuring appropriate payments for specialists. We support the
Practice Expense Coalition's request to:
Halt the transition at the current blend of 50%
1998 PE RVU and 50% projected 2002 PE RVUs practice expense
values; and
Allow scheduled increases for certain office and
consultation services to proceed immediately to their projected
2002 amounts.
Fraud and Abuse
Also among the extensive changes to the Medicare program in
the BBA were efforts to reduce waste, fraud, and abuse. The
AAOS shares the Federal government's concern about intentional
acts to defraud the Medicare program. There is no question that
every reasonable effort needs to be made to eliminate true
waste, fraud and abuse from the Medicare program. However,
fraud and abuse regulations should not be so complex and so
difficult to follow that the vast majority of honest physicians
wind-up making unintentional errors.
More importantly, these regulations are threatening access
to quality health care services for Medicare beneficiaries
because physicians have less time to spend with patients. Time
once spent treating patients is now being spent completing
mandatory documentation and billing requirements, as well as
other regulatory obligations. Not only are physicians spending
more time away from treating patients, but also HCFA's
burdensome and complex requirements are making it difficult and
sometimes impossible for doctors to accept new Medicare
patients. Moreover, physicians are spending more time second-
guessing the regulators and the enforcers about whether they
should be providing a particular service, instead of-and
without hesitation-doing what is in the best interest of the
patient.
The biggest problem in this area of Federal regulation is
that there is no ``bright line'' as to what constitutes illegal
or improper conduct. The presumption running through these
regulations is that physicians are violating the law and are
guilty of defrauding the government, unless they can document
otherwise. We need rules and regulations that are
understandable, fair and, most importantly, provide clear
guidance about what constitutes proper and improper conduct.
Instead, we find the current environment to be confusing and
ambiguous-where law-abiding doctors are placed in an
increasingly hostile and adversarial relationship with the
government.
In an effort to ensure that the regulatory requirements
placed on physicians do not adversely affect access to quality
patient care, the AAOS supports remedies that are consistent,
predictable and clearly understood by physicians. The AAOS has
identified a number of specific areas where Congressional
changes are necessary.
Complex and Contradictory Regulations and Increased
Documentation Requirements
Many rules promulgated by HCFA are so confusing that they
convey no clear indication of how the agency will deal with a
particular practice, leading physicians to be unsure about
their duties and liabilities. We need better guidance to
negotiate the complex maze of regulatory requirements.
For example, orthopaedic surgeons have been perplexed about
the in-office ancillary service provisions of the physician
self-referral law commonly known as ``Stark II'' (Section 1877
of the Social Security Act) and HCFA's proposed rule requiring
suppliers of durable medical equipment (DME) to obtain a surety
bond. The proposed rule to ``Stark II'' excludes DME from the
in-office ancillary service exemption, thus prohibiting the
disbursement of DME in-office. Yet, under the surety bond
proposed rule, HCFA states that physicians will not have to
meet the DME surety bond requirement--if they are providing
these items incident to patient care. It seems that HCFA is
recognizing that DME is distributed by physicians in-office,
even though the proposed rule to ``Stark II'' seems to prohibit
it.
Thus, it appears to the AAOS that HCFA has two proposed
rules that have contradictory statements. Are physicians in the
various practice arrangements allowed to disburse DME incident
to patient care without violating the ``Stark II?'' Do
physicians need a surety bond to disburse these items in
office? If they have a surety bond, and are designated as
suppliers by HCFA, then how is ``Stark II'' applicable?
Since DME is such an integral, customary, and appropriate
part of patient care, commonly provided to patients as an in-
office ancillary service, the blanket prohibition in ``Stark
II'' makes little sense. The AAOS strongly urges the
Subcommittee to revisit this issue, so physicians have clear
guidance about the disbursement of DME.
In addition to this DME issue, the AAOS is greatly
concerned about the enormous complexity of the proposed rule
related to the ``Stark II'' physician ownership and self-
referral statute. The AAOS maintains that HCFA's proposed rule
issued in January 1998 does not provide clear, unambiguous
guidance for compliance. Instead, it has added even more
confusion to what activities are permissible with regard to the
ban on physician self-referral. While the AAOS is hopeful that
the final rule for ``Stark II'' will address many of these
concerns, Congressional oversight is necessary and legislative
remedies may be appropriate to achieve Congress' intent and to
provide clear guidance to physicians.
The AAOS also is concerned with HCFA's increased
documentation requirements for physicians when they perform and
bill for evaluation and management (E&M) services. There seems
to be a presumption that physicians who make errors in coding
these services on Medicare claim forms are guilty of defrauding
the system-unless they can prove otherwise. Even though HCFA
has attempted to ease these documentation requirements,
physicians still can run afoul of the rules and regulations.
For example, when coding modifier -25 is used with CPT
codes for E&M services, they may trigger an audit even though
their usage is perfectly legitimate, saves on paperwork, and
reduces the administrative burden for both physicians and
claims reviewers. Modifier -25 is used in billing when
additional services are provided to beneficiaries beyond the
services described by E&M codes. This modifier was intended to
reduce the documentation requirements imposed on physicians.
However, because their usage may trigger an audit, physicians
are forced to submit claims for each additional service
supported by separate documentation for each service in order
to avoid triggering audits.
In sum, complex and contradictory regulations and
documentation requirements present the physician with a maze of
nearly incomprehensible rules for which non-compliance may be
inevitable even for those with the best of intentions of filing
appropriate claims for services provided under the Medicare
program.
Aggressive and Overreaching Authority by Federal Agencies
We believe HCFA and the Department of Health and Human
Services has overstepped their authority in their efforts to
eliminate Medicare fraud and abuse by using aggressive and
overzealous enforcement techniques against physicians without
sufficient evidence of intentional wrongdoing.
For example, the Anti-Kickback Statute was, in theory,
intended to promote the integrity of the health care system.
While it has achieved this goal in practice, the statute also
has stifled innovative business practices that could have saved
the government money. The 1972 statute was originally enacted
to address bribes and kickback arrangements in the health care
arena. Congress broadened its scope in 1977 to address ``any
remuneration'' giving the Office of Inspector General of the
Department of Health and Human Services (OIG) great latitude in
interpreting its mandate and applying this law to business
arrangements far beyond kickback and bribes. While
Congressional intent was to prevent unscrupulous behavior, the
statute has allowed the OIG to develop a confusing patchwork of
complex regulations and advisory opinions concerning joint
ventures, leases, discounted services and personal service
contracts that significantly limit innovation in the integrated
health care delivery marketplace.
HCFA also has taken broad latitude in interpreting its
authority by implementing initiatives such as the ``Who Pays?
You Pay.'' campaign. This initiative attempts to enlist
Medicare beneficiaries to inform on their physicians if they
suspect their Medicare bill is fraudulent. Unfortunately, it
has the serious potential to damage the physician/patient
relationship by creating an atmosphere of distrust between the
doctor and patient when an open and honest relationship is
essential to effective care and treatment.
The OIG also recently unveiled its ``Compliance Program
Guidance for Individual and Small Group Physician Practices.''
This compliance program significantly raises the stakes for
hardworking and honest physicians who currently make every
attempt to comply with the law. Not only is the creation of a
plan extremely labor intensive and expensive, it has the
potential to shift the burden of proof to the physician.
The OIG has stated that it only prosecutes offenses that
are committed with actual knowledge of the falsity of a claim,
reckless disregard or deliberate ignorance of the truth or
falsity of a claim. However, by having an effective plan in
place, virtually any innocent billing error could trigger OIG
action or prosecution since a compliance plan in place will
indicate that the physician knew or should have known that a
certain activity violated the law. While OIG officials may
claim that the presence of an effective compliance plan will be
taken into consideration if punitive action is necessary due to
alleged billing errors, evidence of a compliance plan could be
interpreted to transform the knowingly and willfully standards
of law into per se violations.
Limited Due Process
Through pre-payment reviews and post-payment audits
conducted by carriers, HCFA engages in audits of physicians on
a random basis without probable cause. Even while HCFA
acknowledges that much of what is uncovered in these reviews
and audits are simple billing mistakes, lack of documentation
or disagreement on treatment procedures, claims submission has
become legally treacherous for physicians. Fear of triggering
an audit has actually led to ``downcoding''-a practice of
underbilling Medicare for services provided to Medicare
beneficiaries-in order to reduce the chance of triggering an
audit.
Under the current scheme, physicians are exposed to purely
random audits without probable cause and without knowing of the
criteria used by HCFA or its carriers to make its
determinations. And once an audit is triggered, physicians are
subject to recoupment of alleged overpayment, penalties and
interest through the use of extrapolation techniques. The only
remedy for physicians once they receive an overpayment notice
is to open their practice to a statistically valid random
sampling of claims to contest HCFA's findings, which, by HCFA's
own admission, is very disruptive to a health care practice.
Physicians would like the government to define the rules,
parameters and standards that outline the scope of these audits
as well as clearly identify the criteria used to trigger
audits.
Fraud and Abuse Recommendation
The vast majority of physicians are honest and dedicated
individuals who make every attempt to comply with Medicare's
complex requirements. Their primary goal is to provide the
highest quality care to their patients. Physicians understand
the need for regulations in the health care system. However,
the rules that they are being asked to comply with and support
should be presented in a clear and precise manner so that they
can practice their profession without fear of punishment
because they could not understand what was expected of them.
The AAOS is very pleased that the Subcommittee is taking an
active role to ensure the Medicare program functions
efficiently for all stakeholders. In considering further
legislative changes to the Medicare program, the AAOS has
several recommendations:
Require HCFA to simplify and clarify regulations
related to the Medicare program so that they are less
burdensome and more easily understood by physicians
particularly with regard to the use of DME as an in-office
ancillary service;
Recognize the costs incurred by physicians to
comply with the numerous Medicare regulations;
Establish adequate due process protections and a
threshold requirement of probable cause when investigating
health care professionals providing services under the Medicare
program;
Develop mechanisms to hold HCFA and other
government agencies accountable for oversight and review
activities;
Delay when a law goes into effect, as well as all
enforcement activities, until final regulations are issued;
Eliminate the prohibition of administrative or
judicial review of Medicare payment and review methodology;
and,
Eliminate the ``scoring'' of budget savings as a
result of fraud and abuse activities. As long as the pursuit of
fraud is viewed as a ``bounty'' or revenue raising activity,
cost-containment measure, or a way to expand program benefits,
overzealous investigations of physician coding and billing
activities will continue.
Again, we appreciate the opportunity to share with the
Subcommittee our views concerning payment and fraud and abuse
provisions of the BBA, and we look forward to working with you
to ensure quality patient care under the Medicare program.
Statement of Edward A. Eckenhof, American Medical Rehabilitation
Providers Association
Mr. Chairman:
This statement is submitted on behalf of the American
Medical Rehabilitation Providers Association (AMRPA). AMRPA is
the national trade association representing approximately 325
freestanding rehabilitation hospitals, rehabilitation units in
general hospitals, and other outpatient rehabilitation
providers. The majority, if not all, of our members participate
in the Medicare program. For rehabilitation hospitals and
units, Medicare accounts for approximately 70% of all
discharges and revenues. Therefore, even temporary changes in
Medicare reimbursement can threaten the security of a great
number of facilities and consequently, the patients we serve.
BACKGROUND
Rehabilitation hospitals and units provide medical care and
various therapies to patients who, because of disease, injury,
stroke or similar incidents, have impairments in their ability
to function, either physically or cognitively. Our goals are to
help them regain their maximum level of functional capability
and to return them to independently living in their own homes.
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. 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 patients admitted to such
facilities were 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.
Rehabilitation hospitals and units are currently reimbursed
for providing Medicare services under a payment methodology
mandated by the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA). This arrangement, which was intended to be
temporary, reimburses facilities on the basis of reasonable,
subject to a payment ceiling (known as the ``TEFRA limit'').
Over time, this system developed a number of negative
incentives, which led to the industry to advocate the
implementation of a prospective payment system (PPS) for
inpatient rehabilitation facilities. In recognition of the need
to modify payment methodology, in the Balanced Budget Act of
1997 (BBA 97), Congress enacted a PPS for inpatient
rehabilitation to be implemented over two years, starting with
cost reporting periods beginning on or after October 1, 2000.
BBA 97 calls for a2% reduction in total expenditures for
rehabilitation services from that which would have been spent
absent the PPS. It also included several provisions aimed at
reducing costs during the transition period until full PPS
implementation. These included a 15% cut in inpatient capital
reimbursement and reductions in bonus incentive payments and
the TEFRA limits.
These interim measures, imposed by the BBA and intended to
reduce Medicare costs during the period prior to PPS
implementation, now threaten the financial security of the
nation's rehabilitation providers as well as the access to
services relied upon by rehabilitation patients.
Earlier this year, the Health Care Financing Administration
(HCFA) announced that it is delaying the implementation of the
rehabilitation inpatient PPS until cost reporting periods
beginning on or after April 1, 2001. Since HCRA has not yet
promulgated the rehabilitation PPS rulemaking, this timeline is
now highly questionable. These significantly delays in the
development of the PPS system render it unlikely that
facilities will begin the transitions to the PPS until the end
of 2001, more than a year later than originally planned.
Overall Medicare outlays for services delivered by
rehabilitation hospitals or units have been reduced by more
than $600 million over three years. And although rehabilitation
spending comprises just 2.3% of total Medicare spending,
rehabilitation hospitals and units have been forced to absorb
almost 4.3% of BBA 97 spending reductions. Moreover, the
sought-after cost reductions have already been realized. The
Medicare Payment Advisory Commission's (MedPAC) June, 2000
Report to Congress, for example, noted that from 1997 to 1998,
Medicare margins for rehabilitation facilities decreased from
6.3% to 1.8%.
The financial impact of the delayed implementation of the
PPs and the realization of Medicare cost savings that were the
impetus for the reimbursement changes, as well as the creation
of a national budget surplus, make imposition of further
financial burdens on the rehabilitation sector both unnecessary
and especially risky. Congress should take action to ensure
both the short-term financial stability of the rehabilitation
hospital industry prior to the implementation of the
rehabilitation PPS and the long-term financial capability of
rehabilitation providers to offer care to an aging population
that will increasingly need its services.
I. CONGRESS SHOULD ENSURE THE CONTINUING AVAILABILITY OF
REHABILITATION SERVICES THROUGH ELIMINATION OF THE 2% REDUCTION
IN TOTAL PAYMENTS AND A TEMPORARY 1% INCREASE IN INCENTIVE
PAYMENTS.
BBA 97 reduced both the total expenditures for inpatient
rehabilitation services under the PPS and changed the current
payment methodology, including the bonus incentives payments,
that previously has been used to encourage and maintain the
most efficient provision of services. As implementation of the
rehabilitation PPS continues to be delayed, these changes to
the TEFRA payment system continue to the overall decline in the
financial stability of the rehabilitation hospital industry.
Section 4421 of the BBA 97 mandated that, in setting the
rehabilitation PPS payment rates, the HHS Secretary reduce
total expenditures for inpatient rehabilitation services by 2%
from what these would have been absent a PPS. Thus, in
determining the rates to be paid under the rehabilitation PPS
for FY 2001-02, only 98% of the total amount that otherwise
would be paid under TEFRA is to be taken into account. In light
of the significant reductions in Medicare spending for
rehabilitation services since enactment of the BBA, the
additional 2% reduction in FY 2001-2002 reimbursement could
devastate an industry already trying to cope with the fiscal
restraints resulting from BBA 97 initiatives.
The long-term financial security of the rehabilitation
hospital industry would be bolstered substantially by
elimination of this reduction. The scheduled reduction was
originally enacted as part of the overall BBA 97 effort to
obtain savings under the Medicare program. Clearly, as
demonstrated by Medicare reimbursement reductions for
rehabilitation facilities, BBA 97 savings have already been
achieved. Thus, there is not longer any reason for Congress to
require this additional reduction in rehabilitation PPS
reimbursement, particularly when one considers the additional
hardship that it will reduce.
Additionally, the BBA 97 imposed several cost-savings
measures. These included reduction of bonus incentive payments,
the program under which PPS-exempt hospitals and units,
including rehabilitation facilities, were eligible to obtain an
incentive payment that was the lesser of 50% of the difference
between their costs and the TEFRA limit, or 5% of the limit.
Section 4415 of the BBA 97 reduced the applicable percentages
to 15% and 2%, respectively. The negative effect of this
provision as was further compounded for facilities that has
TEFRA caps lowered to the 75th percentile under another BBA 97
provision. The industry estimates that, as a result of these
two provisions, the rehabilitation hospital industry lost
approximately $144 million in payments in one year (based on FY
1997). A modest, yet significant, restoration in the form of a
1% increase in bonus payments until full implementation of the
rehabilitation PPS would help to alleviate interim financial
concerns and restore a more meaningful incentive to increase
productivity.
II. UNTIL THE PPS SYSTEM IS FULLY IMPLEMENTED, CONGRESS SHOULD
RESTORE FULL CAPITAL PAYMENTS FOR PPS-EXEMPT REHABILITATION
HOSPITALS AND UNITS.
Because rehabilitation facilities and other PPS-exempt
providers are reimbursed on a cost basis, Congress exempted
them from capital cuts. The rationale for full reimbursement of
capital for providers under cost reimbursement is that such
providers have no opportunity to make up for the loss of
capital payments through operating efficiencies. If costs go
down, so does reimbursement. Section 4412 of the BBA changed
this. It imposes a 15% reduction in capital payments for PPS-
exempt (TEFRA) hospitals and units for FY 1998-2002. This
reduction in capital payments was not driven by policy
considerations, but instead was implemented solely for
budgetary reasons.
As noted above, rehabilitation providers are heavily
dependent on Medicare fee-for-service, which covers 70% of
rehabilitation admissions and an equally high percentage of
revenues. By comparison, other PPS-exempt hospitals (e.g.,
psychiatric, children's) are far less Medicare-dependent. As
such, the capital payment reductions to PPS-exempt hospitals
have a comparatively greater detrimental impact on the
renovation of plants and the building of more modern facilities
by rehabilitation hospitals than by other PPS-exempt hospitals.
In terms of precedents, capital payments to acute care
hospitals were decreased with implementation of the acute care
PPS only after four full years, and only gradually over time.
This progressive implementation initially included a 3.5% cut
in FY 1987, with gradual increases to 15% in FY 1989.
Rehabilitation providers are being forced to absorb capital
reimbursement cuts much more quickly than were acute care
hospitals.
A 15% cut in capital reimbursement costs PPS-exempt
providers at least $62 million in one year along. If capital
and bonus incentive payments are not stored in the short run,
all rehabilitation providers will continue to receive payments
below cost. Therefore, Congress should restore full capital
payment for PPS-exempt rehabilitation hospitals and units.
III. CONGRESS SHOULD PERMIT AN EARLY OPT-IN TO INPATIENT
REHABILITATION PPS.
Under BBA 97, the inpatient rehabilitation PPS will be
implemented gradually over a two-year period. During the
transition, facilities' payments will be calculated using a
combination of TEFRA payments and new PPS payments. in year
one, these payments will consist of the aggregate of two-thirds
of a facility's TEFRA payments an done-third of its PPS
payments; in year two, facilities will receive payments based
on one-third TEFRA and two-thirds PPS. By the third year, all
facilities will be paid 100% under the inpatient rehabilitation
PPS.
As noted above, the impatient rehabilitation PPS was
originally intended to go into effect for cost reporting years
beginning on or after October 1, 2000. HCFA announced earlier
this year that it is delaying implementation of the system
until cost reporting periods beginning on or after April 1,
2001. Since HCFA has not yet promulgated the rehabilitation
rulemaking, this timeline is not highly questionable. Because
most facilities' cost years start later in the year, many
facilities will not begin the transition until the end of 2001
or even later, depending on the final implementation timeline.
Whihle the transition period remains extremely important
for many rehabilitation facilities, some facilities believe
that they can continue to provide high quality, cost-effective
care while moving directly to full PPS in the first year. In
fact, these facilities perceive that trying to live under two
payment systems for two years--TEFRA and PPS--could lead to
conflicting payment and service delivery incentives. It is
important to ensure, however, that rehabilitation facilities
which are not interested in taking an early election to full
PPS retain the ability to transition to full PPS over a two-
year period.
Permitting immediate movement to full PPS would reward
facilities able to revise their costs and service delivery
patterns quickly to meet or come in under their PPS limits.
Congress provided such an election for the skilled nursing
facility PPS, including necessary funding, in the Balanced
Budget Refinement Act of 1999 (BBRA). Congress should look to
this precedent and allow an early opt-in. This change would
preserve facilities' continued financial viability, thereby
furthering their capacity to carry out their primary mission,
the delivery of care to persons with disabilities.
CONCLUSION
AMRPA believes the patients' continuing access to quality
rehabilitation services is currently at risk. The confluences
of reductions in total payments for services, including
reductions in bonus incentives and capital payments coming on
the heels of dramatic decreases in Medicare margins for
rehabilitations services already have resulted in huge losses
for the rehabilitation hospital industry. With the following
actions, Congress can provide vital relief for rehabilitation
facilities and preserve the ongoing availability of
rehabilitation services for the nation's increasingly aging
population:
1) Congress should ensure the short-term financial
stability of the rehabilitation hospital industry prior to the
implementation of the rehabilitation PPS by increasing the
incentive payment by 1%, and ensure the industry's long-term
financial stability by eliminating the 2% reduction in the
total amount to be paid under the PPS for FY 2001-2002
2) Congress should restore full capital payment for PPS-
exempt rehabilitation hospital and units.
3) Congress should permit an early opt-in for those
rehabilitation facilities able to more quickly adopt Congress'
plan.
In addition to the above priorities, AMRPA supports a
three-year extension of the moratorium or outpatient therapy
caps. These caps, imposed by the BBA 97, bear no relationship
to patients' clinical needs. The current moratorium, instituted
by the BBRA in response to the expressed concerns of patients
and providers, applies to calendar years 2000 and 2001. This,
however, is unlikely to provide HCFA with sufficient time to
adequately research and develop appropriate mechanisms to
replace the arbitrarily derived limits on beneficiaries' access
to needed rehabilitation services embodied in the cap. An
extension of the moratorium should provide HCFA adequate time
to complete its studies and to develop methodologies that will
control costs, while protecting patients' treatment needs.
We thank the Committee for this opportunity to submit
testimony. AMRPA looks forward to working with Congress as we
face the future.
Statement on Association of periOperative Registered Nurses, Denver, CO
OVERVIEW
AORN (the Association of periOperative Registered Nurses)
is the professional association representing approximately
43,000 operating room nurses across the country. AORN applauds
Chairman William M. Thomas for his leadership in examining
possible refinements to the Balanced Budget Act of 1997 (BBA).
For the reasons outlined below, AORN respectfully requests the
inclusion of H.R. 3911, the Medicare Certified Registered Nurse
First Assistant Direct Reimbursement Act of 2000, in any BBA
refinement package.
BACKGROUND
The BBA confirmed and expanded the role of non-physician
assistants at surgery. For example, the BBA increased the
reimbursement rate received by Physician Assistants (PAs),
Nurse Practitioners (NPs) and Clinical Nurse Specialists (CNSs)
for assisting a surgeon at surgery... The BBA also removed
restrictions on the type of areas and settings in which first
assisting services of non-physician first assistants may be
covered by Medicare. (SeeSections 4511 and 4512.) Regretfully,
the BBA failed to appropriately recognize the first assisting
role of the certified Registered Nurse First Assistant (CRNFA).
AORN URGES MEDICARE COVERAGE ELIGIBILITY FOR THE SURGICAL FIRST
ASSISTING SERVICES OF CERTIFIED REGISTERED NURSE FIRST ASSISTANTS
As this Subcommittee examines possible Medicare refinements
to the BBA, AORN respectfully requests the inclusion of H.R.
3911. This important legislation calls for Medicare
reimbursement for the surgical first assisting services of
Certified Registered Nurse First Assistants (CRNFAs) at a rate
of 13.6% of the surgeon's fee. This is the same rate at which
Medicare currently reimburses non-physician first assistants.
As first assistants, CRNFAs provide high-quality cost-
effective care and perform the same first assisting tasks and
duties as surgeons, physicians, physician assistants, nurse
practitioners and clinical nurse specialists who may currently
receive Medicare reimbursement for first assisting services.
Reimbursing CRNFAs for their surgical first assisting services
would address this fundamental inequity while improving the
quality and cost efficiency of the Medicare system.
MEDICARE REIMBURSEMENT FOR THE SURGICAL FIRST ASSISTING SERVICES OF
CRNFAs ALREADY ENJOYS BROAD BIPARTISAN SUPPORT ON THE WAYS AND MEANS
COMMITTEE
With strong bipartisan support from his colleagues on the
Ways and Means Committee, Rep. Mac Collins (R-GA) introduced
H.R. 3911, the Medicare Certified Registered Nurse First
Assistant Direct Reimbursement Act of 2000, on March 14, 2000.
This legislation would provide Medicare reimbursement for the
surgical first assisting services of CRNFAs at 13.6% of the
surgeon's fee. The principal sponsor (Representative Collins)
and seven of the cosponsors (Representatives English, Foley,
Johnson, Lewis, McDermott, Shaw and Thurman) serve on the Ways
and Means Committee. Five of those cosponsors (Representatives
English, Johnson, Lewis, McDermott and Thurman) serve on the
Ways and Means Health Subcommittee.
Cosponsors to date include Representatives Lois Capps (D-
CA), John Cooksey (R-LA), Nathan Deal (R-GA), Diana DeGette (D-
CO), Philip English (R-PA), Mark Foley (R-FL), Elton Gallegly
(R-CA), Paul Gillmor (R-OH), Porter Goss (R-FL), Jim Greenwood
(R-PA), Peter Hoekstra (R-MI), Nancy Johnson (R-CT), Patrick J.
Kennedy (D-RI), John Lewis (D-GA), Jim McDermott (D-WA),
Charlie Norwood (R-GA), Charles Pickering (R-MS), Clay Shaw (R-
FL), Ted Strickland (D-OH), Mike Thompson (D-CA), Karen Thurman
(D-FL), and Robert Wise (D-WV).
Further, Representative Collins and eight of his colleagues
joined together in a June 27, 2000 letter addressed to Chairman
Thomas and others, which urged inclusion of H.R. 3911 in any
appropriate legislative vehicle. Signatories included
Representatives Capps, Collins, Deal, DeGette, English, Foley,
Greenwood, Norwood and Pickering. The letter, a copy of which
is attached, prsuasively argues that:
With respect to quality of care, CRNFAs provide a patient-
centered continuum of care in the preoperative, intraoperative,
and postoperative phases of the patient's surgical
experience.CRNFAs often work in tandem with one or a small
group of surgeons; this maximizes communication and
coordination and minimizes the risk of medical error. In
addition, in comparison with other non-physicians who first
assist, CRNFAs have significantly more experience and expertise
directly in first assisting.
As for cost-effectiveness, CRNFAs seek reimbursement for
first assisting at 13.6% of the surgeon's fee; this is the same
as currently is received by PAs and NPs who first assist. By
contrast, physicians who first assist receive 16% of the
surgeon's fee. Health claims data from the Health Care
Financing Administration (HCFA) reveal that physicians file
more than 90% of the first assistant at surgery claims for
Medicare reimbursement... Use of CRNFAs would therefore be a
high quality yet cost-effective alternative for the nation's
health care delivery system, affording additional flexibility
to surgeons, hospitals and ambulatory surgical centers.
We feel strongly that increased use of CRNFAs in surgical
first assisting likely would result in positive patient
outcomes such as lower recidivism rates, decreased
complications from surgery, higher patient satisfaction levels,
and overall lower expected costs per patient.
Many nurses, surgeons, and others in our districts have
expressed their support for H.R. 3911. Some of us have
witnessed CRNFAs first assist at surgery.
In conclusion, we strongly support extending Medicare
coverage eligibility to CRNFAs for their surgical first
assisting services at a rate of 13.6% of the surgeon's fee and
we respectfully urge that you include this proposal in an
appropriate health legislative vehicle.
WHAT IS A CRNFA?
A CRNFA is a registered nurse first assistant (RNFA) who
obtains national certification, a voluntary process. An RNFA
already is a technically skilled, highly educated nursing
professional who renders direct patient care as part of the
perioperative nursing process. The certification process raises
an already high quality standard and recognizes those RNFAs who
have achieved excellence in patient care. The RNFA seeking
certification must meet rigid requirements before applying,
including:
1. Current licensure as an RN, without provision or
condition, in the United States;
2. Certification in perioperative nursing (CNOR);
3. Completion of a minimum of 2000 hours of practice as an
RNFA that includes preoperative, intraoperative, and
postoperative patient care;
4. Completion of a formal RNFA program that meets criteria
established by the Certification Board Perioperative Nursing
including training equivalent to a one-year comprehensive post-
graduate program involving both classroom and clinical studies
in anatomy and physiology, assessment skills, asepsis/infection
control, and an extensive surgical assisting curriculum. During
the required clinical internship, the prospective RNFA spends a
defined number of clinical hours under the supervision of a
surgeon preceptor; and
5.A Bachelor and/or a Master of Science Degree in Nursing.
CRNFAs are recognized by the American College of Surgeons,
the American Nurses Association, the National League of Nurses,
the National Orthopedic Nurses Association, and the 50 State
Boards of Nursing. Indeed, at their annual meeting in June
2000, the American Nurses Association House of Delegates
adopted Policy Number 3.37, which supports federal recognition
and reimbursement for CRNFAs as first assistants.
HOW WOULD CRNFAs SAVE THE HEALTH CARE SYSTEM MONEY?
Health claims data from the Health Care Financing
Administration (HCFA) reveal that physicians file more than 90%
of the first assistant at surgery claims for Medicare
reimbursement. Physicians receive 16% of the surgeon's fee for
first assisting. CRNFAs are requesting only 13.6% of the
surgeon's fee for their first assisting services. Use of CRNFAs
is a high quality yet cost-effective alternative for the
nation's health care delivery system, affording additional
flexibility to surgeons, hospitals and ambulatory surgery
centers.
CRNFAs are equally as cost-effective as other non-physician
providers (PAs and some NPs) who currently are reimbursed at
13.6% of the surgeon's fee for first assisting. Moreover,
CRNFAs receive more advanced education and training in first
assisting than any other non-physician provider who first
assists. For example, PAs commonly complete much less than the
2,000 hours of surgical assisting currently required before
RNFAs may take the CRNFA certification exam. NPs are not
required to have any extensive training in first assisting and
yet receive direct reimbursement.
In addition, CRNFAs and RNFAs are the only providers--aside
from the rare physician making house calls--who sometimes
provide post-operative care by actually visiting patients at
home following surgery. The result is better continuity of care
and positive patient outcomes such as lower recidivism rates,
decreased complications from surgery, higher patient
satisfaction levels and overall lower expected costs per
patient. Until H.R. 3911 is enacted, enabling CRNFAs to receive
direct reimbursement, there is no incentive to use these high
quality, cost-effective providers for first assisting in
surgery.
WHO CURRENTLY REIMBURSES CRNFAs?
Though some commercial insurers provide coverage for the
services of CRNFAs, reimbursement is inconsistent and varies on
a state-by-state, case-by-case basis. Although payment by
BlueCross/BlueShield plans differs by state; generally, if the
CRNFA is not a contracted provider, BlueCross/BlueShield will
pay the patient directly for CRNFA services. Many Medicaid
plans also provide direct reimbursement.
COST ESTIMATE
H.R. 3911 is currently being scored by the Congressional
Budget Office. An independent cost estimate by Muse &
Associates determined that coverage eligibility for CRNFAs
under Part B of the Medicare program would cost $7.2 million in
2000, increasing to $25.1 million in 2004 for a total cost over
a five-year period of $84.6 million.
SUMMARY
As BBA Medicare refinements are considered, AORN
respectfully urges this Subcommittee to extend Medicare
coverage eligibility to CRNFAs for their surgical first
assisting services. Working in collaborative practice with
surgeons, CRNFAs are cost-effective to the patient and to the
health care delivery system Because CRNFAs would be reimbursed
under Medicare at a lower rate than physicians who first
assist, and because CRNFAs routinely provide much-needed
patient assessment, education and counseling, inclusion of H.R.
3911 in any BBA refinement package could well decrease the
frequency and length of hospital stays resulting in improved
patient outcomes and net savings to the Medicare program.
AORN appreciates this opportunity to submit its views with
respect to BBA Medicare refinements. Please contact our
Washington Counsel, Karen S. Sealander of McDermott, Will &
Emery, at 202/756-8024 at any time with questions.
[An attachment is being retained in the Committee files.]
Statement of Charles F. Pierce, Jr., Florida Hospital Association
Mr. Chairman and Members of the Subcommittee:
My name is Charles F. Pierce, Jr., and I am President of
the Florida Hospital Association, an association that
represents 230 Florida hospitals and health care systems with
over 200,000 hospital employees.
America's health care system sits at the crux of a great
paradox. In the midst of a booming economy and escalating
surplus, the facilities you and I and millions of others have
come to rely on for our health care needs face unprecedented
financial pressures and uncertainty about their future.
Hospital leaders with as much as 20-30 years of experience
report they have never experienced anything like their current
financial situations. A snapshot of hospitals in Florida
following enactment of the Balanced Budget Act shows the
magnitude of this somber reality:
Reductions in Medicare payments to Florida
hospitals are estimated at $3.6 billion.
Almost 32% of all Florida hospitals reported
losses in 1998.
Over half of all hospitals saw a drop in net
income from the previous year.
Changes in bond ratings were dominated by five
times as many downgrades as upgrades.
The Balanced Budget Act cut too deeply in hospitals across
the nation. Because Florida has the highest percentage of
Medicare beneficiaries in the nation, the impact is
exceptionally severe and deeply disturbing. There are 2.8
million elderly in Florida and the numbers are growing.
Patients are older and sicker, requiring more intensive
services and support. Florida's hospitals are expected to meet
the needs of these seniors despite BBA reductions amounting to
$1 billion in the first two years of its implementation and an
additional $2.6 billion in the next three years--even after the
BBRA of last year. Though hospitals continue to scrutinize and
squeeze their budgets, the cost savings they realize do not
begin to match the size of the mandated Medicare cuts. What
does the additional reduction of $3.6 billion mean to our
hospitals?
Even after the partial relief offered by the BBRA,
Florida's 27 rural hospitals, which serve over 500,000
citizens, are expected to lose $50.6 million. These cutbacks
will have alarming consequences among communities solely
dependent on the health care services these facilities provide.
Without additional relief, how will our rural hospitals
continue to serve these remote communities?
A number of services, particularly outreach services that
undergird the health needs of some of the most vulnerable in
our society, have been closed. Martin Memorial Medical Center
in Stuart, Florida, was forced to close an urgent care center
for residents of the isolated community of Indiantown, many of
whom are migrant and unskilled workers. The care center lost
money every year, but Martin Memorial continued to support it
as part of its community mission. This year, the hospital could
no longer afford to absorb the cost of the center. ``It was a
heart-wrenching decision to announce we couldn't finance the
center any more,'' Martin Memorial CEO Dick Harman reported.
Bethesda Memorial Hospital in Boynton Beach had to make a
similar, difficult decision when it closed its clinic for poor
pregnant women in southern Palm Beach County.
Mercy Hospital withdrew from the Dr. Rafael Penalver Clinic
in Little Havana, Miami, after losing $3.6 million in three
years.
And Shands HealthCare, an eight-hospsital system providing
care to patients from each of Florida's 67 counties, has had to
close all but two of its home health care units because it lost
more than $20 million annually after the BBA was enacted.
These are not isolated incidents. Over the last two years
in Florida, 34 hospitals experienced the closing of 271 acute
care beds, 5 obstetrics programs, 295 psychiatric and substance
abuse beds, and 122 skilled nursing beds. Without relief, these
kinds of safety net programs and--more importantly--the poor
and needy people they serve, will suffer and their access to
basic health care will be jeopardized.
Of great and growing concern is the reality that the BBA
has forced health care providers to reduce or eliminate other
community and senior services. Nationally, over 3,000
independent home health agencies have closed their doors in the
past three years. Already, 75 Florida communities have lost
home health agencies, and now they have none. Baptist Health
Care of Pensacola has had to close two rural health clinics and
one home health agency. Memorial Healthcare System in
Hollywood, Florida, could not expand its much-needed skilled
nursing unit because the BBA reduced its funding by $623,000.
These are just a few of the many examples of what is occurring
in Florida. We are deeply concerned that almost 20% of all
long-term beds in Florida belong to organizations that have
filed for bankruptcy. ``We've seen some serious problems
develop,'' said Jim Booth, CEO of Interim HealthCare, one of
the largest home health agencies in South Florida. ``Due to
cutbacks in reimbursement, some chronically ill patients are
not getting the necessary care.'' If Congress does not
intervene soon, where will our elderly seniors receive the care
they need?
Our hospitals are delaying the purchase of much-needed new
and replacement equipment and postponing important renovations.
For Baptist Health Systems of South Florida, the BBA delayed by
one or more years a more accessible outpatient facility, which
would enable more people in the local community to receive
basic health care services. This major health care system also
is concerned that its ability to invest in critical medical
equipment will be significantly limited in the future. Without
relief, how will our hospitals keep pace with the latest
technology and treatment opportunities our citizens deserve and
have come to rely on? As hospitals struggle with the severity
of the BBA's impact, they are confronting other social and
economic factors that also dangerously strain their ability to
provide necessary health care services. For example:
There are 2.5 million Floridians (44 million
nationwide) who have no health insurance. That number is
growing. Crowded emergency rooms provide their only medical
recourse. Federal law requires hospitals to stabilize and
evaluate anyone who comes into the emergency room, yet no
reimbursement accompanies this unfunded mandate. This means
that hospitals must absorb these costs. In 1998, Florida
hospitals provided over $1.2 billion in uncompensated care.
New drugs and medical technology result in higher
costs for patient care with no increased payment for them. As
you have heard in great detail, the average price for new drugs
continues to skyrocket and consumes an alarmingly higher
proportion of what it costs to treat patients.
Severe shortages of nurses--currently Florida has
over 4,800 open nursing positions--and shortages of other
allied health professionals are causing labor costs to spiral.
Hospitals not only pay higher wages, but also offer signing
bonuses and increased benefit packages. These costs are rising
as Medicare is reducing payments.
New regulations initiate major, costly compliance
issues. Florida hospitals must comply with regulations from 26
federal, 11 state, and 6 voluntary agencies. For example, the
estimated nationwide cost of implementing HIPPA is $43
billion--dwarfing Y2K compliance costs. Where will the funds
come from?
Indeed, Florida hospitals are facing unprecedented
financial pressures and need your help. We support enactment of
legislation (HR3580) that provides a full market basket update
for fiscal years 2001 and 2002 under Medicare. BBA set the
update at market basket--a measure of hospital inflation--minus
1.1 percentage points for each year. Elimination of the
remaining two years of the BBA-mandated market basket
reductions provides an estimated $7 billion relief nationally,
with $716 million for Florida hospitals. This bipartisan bill,
which has been co-sponsored by 19 members of the Florida
delegation, will simply re-establish a realistic link between
cost increases and appropriate payment rates. Under BBA,
hospitals have seen costs increase by seven percent while
payments were updated by less than two percent. The scenario
will worsen during the next two years if no action is taken.
Additionally, we urge Congressional approval of legislation
(HR3698, HR3710) to protect federal disproportionate share
hospital (DSH) allotments from reductions beyond FY 2000 levels
and allow payments for uncompensated care to grow at the rate
of inflation. The Medicaid DSH program is the primary source of
financial support for safety net hospitals that provide care to
the underserved and our most needy citizens. HR3698 and HR3710
provide substantial relief for struggling safety net hospitals,
while still achieving significant savings in the DSH program.
Funding for these changes must come from the projected
federal surplus and not from payment reductions to hospitals in
other areas.
Enactment of these bills provides a framework for Congress
to remedy the damage caused by the Balanced Budget Act.
Additional repairs will be necessary. There must be a balance
between slowing Medicare's growth and responsible program
financing. The Florida Hospital Association is encouraged that
the Florida Delegation and their bipartisan colleagues in
Congress, as well as MedPAC, health care providers, and
citizens across the nation are aligned in their conviction that
something must be done to reverse the devastating impact of the
BBA on hospitals. In Florida, something must be done quickly.
We look forward to working with you to strengthen our
hospitals' ability to fulfill their mission--to provide quality
care to the citizens in their communities.
Thank you.
Charles F. Pierce, Jr.
[An attachment is being retained in the Committee files.]
Statement of Honorables Bob Franks, Rodney Frelinghuysen, Marge
Roukema, Frank LoBiondo, Jim Saxton, and Chris Smith
Mr. Chairman, thank you for providing us with an
opportunity to describe the harsh impact of the Balanced Budget
Act on the hospitals in our state and to suggest legislative
remedies.
New Jersey hospitals comprise an industry that generates
more than $10 billion in yearly economic activity for the
Garden State. Hospitals employ more than 150,000 individuals
and return financial successes back to the community through
such benefits as enhanced medical facilities, equipment,
outreach programs, clinics, jobs and purchasing power. Monies
are returned--not to Wall Street investors--but to the very
heart of where care is delivered, the community.
The Balanced Budget Act of 1997 (BBA) made the most
sweeping changes in the Medicare program since its inception in
1965. Realizing its impact on the economy, hospitals supported
balancing our nation's federal budget. However, the Medicare
changes contained in the BBA, payment reductions and program
requirements went beyond initial intent. The fiscal assumptions
used by the Congressional Budget Office (CBO) underestimated
the financial impact of the reductions even in the first year.
New estimates show that hospitals are slated for at least
$76.7 billion in reductions compared to the expected $44
billion when the law was enacted.
The Balanced Budget Refinement Act of 1999 (BBRA) restored
$17 billion of the estimated five year Medicare reductions, of
which an estimated $123 million benefits hospitals in our
state. However, the BBRA, with its significant slant toward
rural areas, provided less than 10 percent of the total BBA
reductions. In New Jersey, the BBRA represents an increase of
just six percent over the original BBA cuts.
Looking at the financial health of hospitals, one must
examine hospitals' entire book of business. In New Jersey,
hospitals are seeing increasing pharmaceutical and technology
costs, increasing personnel costs, a nursing shortage, a rising
number of uninsured and managed care payment delays and
denials.
With that said, our hospitals, are in their worst financial
shape in decades. More than 60 percent of New Jersey hospitals
are experiencing a loss on operations. On average, total
margins or profitability is a negative 1.6 percent, and
Medicare margins remain below the national average. Further,
the most severe BBA reductions come in the remaining two years
of the five-year plan, with 53 percent of the reductions yet to
come. More must be done to address this unhealthy trend if New
Jerseyans are to continue to have access to high quality
healthcare services provided by hospitals, health systems and
post acute care providers.
MedPAC has also come to the same conclusion. In its report
to Congress last month, MedPAC stated ``Hospitals' financial
status has deteriorated significantly over the past two
years.'' The report goes on to recommend increasing hospital
inpatient payments between 3.5 and 4.0 percent.
It has become apparent that the financial problems facing
New Jersey hospitals are rooted in different areas and
therefore require varied solutions. Our hospitals are working
hard to do their part by implementing changes that will help
them survive. Here are some of the things our hospitals have
pursued during this crisis:
To become more efficient, hospitals have decreased
their Medicare length of stay from 11.1 days in 1993 to 7.2
days in 1999, a reduction of 35 percent. The national Medicare
length of stay has come down 21 percent.
Through attrition and downsizing, hospitals have
reduced staffing by nearly 1,800 employees in the last year.
The number of New Jersey facilities has decreased
by 11 percent. Since 1996, four hospitals have closed and
another five facilities are in the process of closing.
Due to these closures, hospitals are on target to
reduce 2,371 beds. This directly addresses concerns of
overbedding.
Hospitals have reduced the average cost to treat
Medicare patients in the hospital by $1,000 over the last 6
years.
Hospitals are educating caregivers on how to
improve documentation skills to decrease the number of HMO
claim denials.
Hospitals are utilizing electronic filing to
reduce mistakes and produce quicker payments. Cleaner claims
means more efficiently processed payments.
Even with these efforts by our hospitals, we believe there
is still a federal responsibility to ease the pain from the
overreaching BBA cuts. Be assured, we're proud of the first
step Congress took last year to restore funding for hospitals
in the Medicare, Medicaid and SCHIP Balanced Budget Restoration
Act of 1999 (BBRA). The relief for outpatient prospective
payment was by far the most helpful of the provisions included
in this legislation. While New Jersey hospitals stood to lose
$101 million in outpatient reductions, the refinement bill
restored $71 million.
Unfortunately, this relief does not go far enough. The
numbers speak for themselves. In 1997, the hospitals in our
state were asked to shoulder $1.8 billion in Medicare
reductions over five years. Last year, Congress restored $100
million to New Jersey hospitals over five years. On average,
that's a yearly amount of $240,000 per hospital--not enough to
even cover most hospitals' payroll for three months. In
addition, the Congressional Budget Office (CBO) has
acknowledged that the reductions have gone farther than
economists predicted. Some are estimating that the reductions
to hospitals nationally are actually closer to $200 billion
over five years--instead of $116 billion.
As Congress once again begins deliberations on restoring
funds to Medicare providers, there are some specific steps that
we believe Congress can take to help stabilize New Jersey
hospitals:
Marketbasket Update
One of the largest Medicare reductions in the BBA comes
from reducing the update for inpatient care. HCFA has
historically given hospitals an adjustment for the annual
increase in the costs of goods and services. The BBA reduced
this nationally by $5.3 billion. The BBA of 1997 instituted
below-inflation updates, while hospitals continue to face, for
example, rising pharmaceutical prices for new drugs, increased
costs for patient record privacy and security requirements and
a nursing shortage that requires extra training and recruitment
resources. Restoring a full marketbasket adjustment for
hospitals would help blunt the financial pain of the BBA.
Transfers
The BBA expanded the definition of transfer cases to
include patients who are sent from an acute care hospital to
any post-acute setting: rehabilitation, psychiatric or skilled
nursing facility or home health agency. Previously, only
patients sent between acute care hospitals were defined as
transfers. Now hospitals that transfer patients to a post-acute
facility receive a lower Medicare reimbursement if the
inpatient stay is shorter than the average length of stay.
The expansion of the transfer definition to include post-
acute stays is particularly punitive in New Jersey. More than
24 percent of New Jersey's seniors seek additional care after a
hospital stay. Furthermore, in 1992, New Jersey hospitals'
average length of stay for a Medicare beneficiary was 11.2 days
but has now decreased to 7.2 days in 1999.
The expansion of the transfer definition directly
contradicts the basic premise of the prospective payment system
(PPS) by eliminating the incentive to treat patients
efficiently in the most cost-efficient setting.
While the Department of Health and Human Services has
agreed not to expand the number of cases subjected to the
transfer provision until 2002, this misdirected policy should
be repealed in its entirety. This provision runs counter to the
incentives of the Medicare payment system by unfairly
penalizing efficient providers. Furthermore, with post-acute
care entities also paid on a PPS, financial benefits of
transfer cases are eliminated.
Relaxation of Geographic Reclassifications
The Health Care Financing Administration (HCFA) allows for
counties to reclassify into neighboring metropolitan areas if
hospitals meet a strict set of criteria and petition annually.
Fewer counties have pursued this ability to reclassify because
the criterion is no longer as relevant. In FY 1995, 23 counties
reclassified, however last year, just five counties nationally
were granted a county-wide reclassification. HCFA's criteria
uses a ``rate proxy'' to determine comparable costs--mainly
because when reclassification reviews were developed in 1989
immediate cost comparison information was not readily
available. Today, with the increased use of computers and
electronic filing, cost information could easily be used.
Rather than an outdated rate proxy, we urge an actual cost
comparison be incorporated into the county-wide
reclassification criteria.
Mr. Chairman, as you know, the lastest CBO reports indicate
that budget surpluses are likely to exceed $4 trillion over the
next decade. Congress realized these extraordinary savings, in
part, from reducing Medicare payments to hospitals nationwide.
The provisions mentioned above, are just some examples of
relief we would support in a second Balanced Budget Refinement
Act.
New Jersey is the densest state in the union and we are
considered to be a wholly urban state. However, we have many
areas that are far from urban. But, without federal rural
designations, we were unable to take advantage of much of last
year's relief that was intended to help rural areas.
Moreover, our location impacts our competitiveness. Located
as we are between two of the highest wage markets in the
country, government reimbursement policy impacts our ability to
attract the highly skilled and professional staff that our
hospitals require.
Mr. Chairman, as you craft legislation to ease the pain of
Medicare providers across the nation, we hope that you will
take into consideration the unique challenges we face in New
Jersey in providing health care to our communities.
We look forward to working with you in the upcoming months.
Sincerely,
Statement of Louisiana Association for Behavioral Healthcare, Crowley,
LA
Dear Healthcare Subcommittee Members,
In several meetings between the Louisiana Association For
Behavioral Healthcare (LABH) and HCFA over the past 12-18
months, HCFA has assured Community Mental Health Centers
(CMHC's) that OPPS would not put CMHC's out of business. They
assured this association that transitional corridors and
outlier payments would be provided to CMHC's to lessen the blow
of OPPS. This statement was echoed by intermediaries in the
training provided on implementation of OPPS. Over the past
month, HCFA has changed their position and are not providing
any relief to Community Mental Health Centers. In fact,
multiple facilities have closed and are closing due to the
severity of the impact of OPPS.
Compounding the payment problems is the lack of clear
guidelines for providers on issues related to service
provision. For example, in Louisiana, Fiscal Intermediaries
have yet to provide a Local Medical Review Policy (LMRP), which
addressed the changes in the Final Rule. This association was
assured by HCFA that a LMRP would be published prior to the
implementation of OPPS.
To expand on the problems mentioned above we are providing
you with the following comments.
1. HCFA fails to follow Federal Parity Legislation in the
implementation of OPPS by allowing medical providers
Transitional Corridor Payments and Outlier Payments and
precluding CMHC's from qualifying for any additional payments.
A default rate has been given to CMHC's which calculates to
$0.00 in Transitional Corridor and Outlier Payments.
2. Rural hospitals have been provided with relief from OPPS
but rural CMHC's have been excluded.
3. In Secretary Shalala's meeting with Congressman Nick
Lampson on July 11, 2000, she states that the cost for PHP
services is actually $350.00 per day based on 1996 hospital
data, yet the reimbursement under OPPS is $202.00 per day in
2000.
4. HCFA publicly admitted on several occasions that no data
from CMHC's was utilized in determining the daily rate.
5. No impact studies were conducted regarding the impact of
OPPS on access to care for the mentally ill. To date, Louisiana
has experienced closures in excess of 50% on Partial
Hospitalization Programs due to implementation of OPPS. This
leaves entire parishes in this state with no access to
Psychiatric Services for Medicare beneficiaries.
6. The OIG Report on Community Mental Health Centers is
inaccurate, as evidenced by statements in the GAO Report. (See
attached statement of facts not included in the OIG Report.)
In closing, we respectfully request immediate relief from
the devastating and discriminatory effects of the
implementation of OPPS.
We have exhaustively worked to rectify these problems with
HCFA over the past 18 months to no avail.
The beneficiaries, already burdened with chronic mental
illness, are the least able to advocate for themselves. The
lack of access to mental health treatment is a real and
immediate impact of OPPS.
Please help restore this desperately needed benefit.
Respectfully,
LABH
Facts not accounted for in the OIG report:
1. The five states mentioned in the report have the
following three commonalties relevant to the OIG report: (from
the December 1998 AABH newsletter)
They have the highest geriatric populations;
They have proportionately higher immigrant
populations-many of whom qualify for Federal Medicare Health
Insurance;
there states have aggressively pushed to transfer
medical insurance costs for its disabled populations, heavily
represented by individuals with chronic mental illnesses from
their Medicaid/Medical Assistance funds to the Federal Medicare
System.
2. The sharp rise in the utilization of outpatient mental
health services funded by the Medicare program sharply rose at
the same time Medicare capped the benefit for inpatient
psychiatric hospitalization. This has resulted in a decrease in
the length of stay of inpatient psychiatric hospitalization and
increased utilization of partial hospitalization program. In
1984 there were 130,411 state and county mental health
hospitals throughout the country. By 1994 that number had
dropped to 79,294. During that same time the number of total
available inpatient psychiatric beds throughout the country
dropped from 112.9 beds per 100,000 population to 97.5 beds per
100,000. (Mental Health United States, DHHS 1996)
3. The cost for services has risen as the acuity of
patients has risen. As in all fields of Medicine, the sicker
the patient, the more labor intensive the treatment. With
sicker and sicker patients being treated on an outpatient
basis, the need for increased care has risen. In 1975 48.5% of
the total mental health expenditures in the United States went
to State and County mental hospitals. By 1994 that number had
dropped to 23.6%. During that same time, the expenditures for
freestanding outpatient clinics, multiserve mental health
organizations, other residential programs and freestanding day
programs rose form 1.8% of the annual mental health
expenditures in 1975 to 26.8% in 1994. (SAMHSA)
4. There was a significant shift during the past 15 years
within healthcare to increase utilization of outpatient
services for the mentally ill. This trend is evidenced not only
by the above-mentioned statistics, but also by the trend in
expenditures for additions to programming. In 1983 there were
146 additional beds added to state and county mental hospitals.
In 1994 that number had dropped to 91.2. During that same time,
the addition to available PHP services grew from 177 in 1983 to
273 in 1994. (Mental Health United States, DHHS, 1996)
5. The number of workers employed in the inpatient and
outpatient areas from 1994 also demonstrates the shift from
inpatient to outpatient treatment. In 1984 there were 117,630
patient care employees in state and county mental hospitals. By
1994 that number had shrunk to 102, 153. During that same time,
the number of patient care staff employed by freestanding
outpatient clinics, freestanding day-night organizations,
multiservice organizations and other residential organizations
grew from 71,161 in 1984 to 143,967 in 1994. (Mental Health
United States, DHHS, 1996)
6. HCFA failed to provide its contractors with timely and
adequate guidance on the PHP benefit-it's scope, the type of
patient's it covered, the types and duration of services it
covers, and the services CMHC's are required to provide. In
addition, neither HCFA not its contractors monitored the claims
received for the new benefit (PHP), and, when improper payments
were discovered, HCFA did not respond effectively. (GAO Report-
January 2000)
7. HCFA's subcontractors were unclear how to effectively
implement this benefit and struggled to understand the
parameters of the partial hospitalization benefit. This created
wide disparities between areas of the country on the
interpretation of the benefit. Some contractors were allowing
one type of patient to be appropriate for PHP services while
another contractor would deem that patient ineligible for the
benefit. (GAO Report-January 2000)
8. The first program memorandum wasn't released by HCFA
until June of 1995. Prior to that time, many programs were
using the PHP benefit for maintenance programs where patients
came for a few groups a day, a few days a week. This was the
first step in clarifying the types of patients for admission.
9. In July o9f 1996 Program Memorandum A-96-2 and A-96-8
were released. These directives resulted int he provide
requirements to increase the level of Services provided and
increased the acuity level of the type of patient's appropriate
for PHP programming. From the first 1995 memorandum on, the
cost for services in PHP programs directly increased. These
programs were now strictly a replacement for inpatient
psychiatric services.
10. The national population is turning 50 years old at a
rate of 10,000 people per day.
11. HCFA projection of a cost of $15 million dollars
nationally was greatly underestimated. This would have only
provided less than $300,000 per state and territory for care of
an already underserved population.
12. Patients denying they are mentally ill or saying they
are attending a program for reasons other than psychiatric
treatment is not all together rare. Many of the patients we
treat are unable or unwilling to admit the severity of their
illness. This is a problem that has been greatly appreciated in
the Surgeon General's Report on Mental Health.
13. The OIG report fails to provide statistics on the
number of denied claims that were overturned. Approximately 50%
of denied claims are overturned on first line review. Others
may have been denied on technical grounds, which is not
reflective of fraud and abuse but represents human or
mechanical error.
REPORT ON PARTIAL HOSPITAL CLOSURES
The following is a list on the closures of Partial
Hospitalization Programs throughout the state of Louisiana.
These are programs that have closed since 1997. Since there are
no accurate or up to date records with the Department of Health
and Hospitals or with the Health Care Finance Administration,
this list was compiled by calling facilities, interviewing
providers and meetings of the LABH.
There are probably many other closures which have not been
taken into account due to lack of available information.
----------------------------------------------------------------------------------------------------------------
Facility City/Town Parish Type
----------------------------------------------------------------------------------------------------------------
Lake Charles Memorial HospiLake Charles Calcasieu Hospital Based
Lake Charles Memorial Welshtal Jefferson Davis Hospital Based
Lake Charles Memorial HIowatal Calcasieu Hospital Based
Lake Charles Memorial HospiLeesville Vernon Hospital Based
Allen Parish Hospital PHP Kinder Allen Hospital Based
Oakdale Community Hospital PHP Oakdale Allen Hospital Based
St. Patrick's Hospital PHP Lake Charles Calcasieu Hospital Based
Calcasieu Oaks PHP South Lake Charles Calcasieu Hospital Based
Cameron Hosp
Charter PHP Lafayette Lafayette Hospital Based
Link Care Pineville Rapides CMHC
Phases Slidell St. Tammany CMHC
Phases Baton Rouge E. Baton Rouge CMHC
Savoy Medical Center PHP Mamou Evangeline Hospital Based
Senior Care Center Arnaudville St. Landry Hospital Based
Nakatash PHP Natchitoches Natchitoches Hospital Based
The Helping Center Baton Rouge Baton Rouge CMHC
Pointe Coupee Shreveport Caddo Hospital Based
Summitt Medical Center PHP Baton Rouge Baton Rouge Hospital Based
Dixon PHP Denham Springs Livingston Hospital Based
Louisiana CMHC Baton Rouge Baton Rouge CMHC
Community Care Hammond CMHC
Avoyelles Comprehensive Marksville Avoyelles CMHC
Lake Hospital PHPMandeville St. Tammany Hospital Based
Comprehensive Mental Health Monroe Ouachita CMHC
CPHC Baton Rouge E. Baton Rouge CMHC
Louisiana CMHC Slidell St. Tammany CMHC
Louisiana CMHC Baton Rouge E. Baton Rouge CMHC
Interventions Baton Rouge E. Baton Rouge CMHC
Imperial Helping Center CMHC
New Directions CMHC
Opelousas CMHC Opelousas St. Landry CMHC
Bonding Center Plaquemine Plaquemine CMHC
Care Team Monroe Ouachita CMHC
Moosa Memorial Hospital PHP Eunice Acadia Hospital Based
Livingston CMDenham Springs Livingston CMHC-(8-1-00)
Comprehensive Health Care Baton Rouge E. Baton Rouge CMHC
----------------------------------------------------------------------------------------------------------------
Statement of National Association for Home Care
Mr. Chairman and Members of the Subcommittee, thank you for
the opportunity to submit written testimony for the record on
the impact of the Balanced Budget Act of 1997 (BBA97) on the
Medicare home health benefit.
Our remarks are presented on behalf of the National
Association for Home Care (NAHC). NAHC is the nation's largest
home care organization, representing nearly 6000 Medicare-
participating home care providers, including non-profit
providers like the visiting nurse associations, for-profit
chains, hospital-based providers, government-run agencies, and
freestanding providers.
While we are greatly appreciative of efforts taken by you
and your colleagues in 1998 and again in 1999 to mitigate some
of the unintended damage to home care caused by BBA97, it is
essential that further, decisive action be taken this year to
return the Medicare home care program to a sound footing. Data
recently provided by the Health Care Financing Administration
(HCFA) provide a disturbing picture of the current state of the
Medicare home health program. From calendar year 1997 to 1999,
the number of beneficiaries served dropped by nearly one
million, from 3.5 million to 2.6 million, or by close to 25
percent. Total outlays for the same period dropped from $16.7
billion to $7.7 billion, or nearly 54 percent. In those two
years, home health dropped by almost 50 percent, and the
average payment per patient dropped by 38.5 percent (source:
preliminary 1999 HCFA/HICS data).
Home health will transition to a prospective payment system
(PPS) under Medicare on October 1 of this year. This new
payment system is expected to be much more appropriate in
design than the existing system that was imposed by the BBA97;
however, because the global budget set for the PPS restricts
outlays to what would have been spent if the current system
were to continue, episode payment rates are expected to be
inadequate and may perpetuate many of the access problems
certain classes of patients (such as wound care patients) are
experiencing today. The change in the home health payment
system will not correct all of the problems in home health that
have resulted from the BBA97.
Recently, NAHC, along with the four other national home
health associations, developed a unified legislative agenda
designed to restore and preserve the Medicare home health
benefit in light of the devastation wrought by the BBA97. The
national associations are agreed that true relief for the home
care program cannot be achieved without legislative action that
encompasses both restoration of services to patients who have
lost care, and the elimination of further threats to the
stability of the Medicare home health program and our national
home care infrastructure.
IMPACT OF BBA97 ON HOME HEALTH BENEFICIARIES AND PROVIDERS
Balanced Budget Act Leads to Unprecedented Reductions in Home
Health Utilization and Spending
The reductions in Medicare's home health benefit since
enactment of the BBA97 are startling and unprecedented. Since
fiscal year 1997 program expenditures decreased 48 percent,
from $18.3 billion in FY97 to $9.5 billion in FY99 (Fig. 1).
[GRAPHIC] [TIFF OMITTED] T1743.003
While other Medicare programs have seen reductions due to
the BBA97, no other decrease has been close to what the home
health benefit has experienced (Table 1). In fact, FY99 was the
first year in the history of the home health benefit in which
Medicare outlays for skilled nursing facility care exceeded
those of home health. Less was spent on Medicare home health
services in FY99 than was spent in FY94.
Table 1. Medicare Program Benefits, Fiscal Years 1997, 1998, 1999
----------------------------------------------------------------------------------------------------------------
Benefit Type FY97 Amount FY98 ($billions) FY99
----------------------------------------------------------------------------------------------------------------
Managed care 25.0 31.9 37.4
Inpatient hospitals 88.3 87.0 85.3
Skilled nursing facilities 12.6 13.6 12.4
Home health 18.3 14.0 9.5
Hospice 2.1 2.1 2.5
Physicians 32.0 32.3 33.5
Outpatient hospitals 10.7 10.5 9.7
Durable medical equipment 4.1 4.1 4.2
Other 14.0 14.6 13.8
TOTAL MEDICARE 207.1 210.1 208.3
Percentage Change by FY97-98 FY98-99 FY97-99
Benefit Type
Managed care +27.6% +17.2% +49.6%
Inpatient hospitals -1.5 -2.0 -3.4
Skilled nursing facilities +7.9 -8.8 -1.6
Home health -23.9 -32.1 -48.1
Hospice 0.0 +19.0 +19.0
Physicians +1.1 +3.7 +4.8
Outpatient hospitals -1.9 -7.6 -9.3
Durable medical equipment 0.0 +2.4 +2.4
Other +4.0 -5.5 -1.7
TOTAL MEDICARE +1.4 -0.9 +0.6
----------------------------------------------------------------------------------------------------------------
AASource: HCFA, Office of the Actuary unpublished estimates for the President's fiscal year 2001 budget.
Home health spending as a percent of Medicare dropped
precipitously from 9 percent of total Medicare outlays in FY97
to just 5 percent of total Medicare benefits in FY99. (Fig. 2)
HCFA's current projections for FY2000 indicate that home health
will drop further, to 4 percent of total Medicare outlays.
[GRAPHIC] [TIFF OMITTED] T1743.004
Every state has seen reductions in Medicare home health
utilization and expenditures since 1997. In one year, 1997 to
1998, visits decreased 40%, the average payment per patient
decreased 29%, and the average number of visits per patient
declined 30%.
The Congressional Budget Office (CBO) originally
anticipated a $16.1 billion reduction in projected home health
spending over five years following enactment of BBA97. The most
current CBO estimates and projections for home health show that
spending was reduced by a total of $19.7 billion in just two
years (FY98 and FY99) (Table 2). Based on the latest CBO
projections, home care spending will be reduced by a total of
$69 billion over five years (FY98-FY2002)--or, more than four
times the intended reduction.
Table 2. Home Health Reductions Exceed $60 Billion Through FY2002
----------------------------------------------------------------------------------------------------------------
CBO Home Health
Baselines FY97 FY98 FY99 FY00 FY01 FY02 FY98-02
($billions)
----------------------------------------------------------------------------------------------------------------
January 1997 19.0 21.1 23.2 25.3 27.5 29.9 127.0
Outlays
BBA Target 19.0 20.0 21.2 21.2 23.3 25.2 110.9
Outlays
March 2000 17.5 14.9 9.7 9.8 11.1 12.5 58.0
Outlays
Expected n.a. -1.1 -2.0 -4.1 -4.2 -4.7 -16.1
Reduction
Actual n.a. -6.2 -13.6 -15.5 -16.4 -17.4 -69.0
Reduction
----------------------------------------------------------------------------------------------------------------
Network of Agencies Severely Diminished
Given the level of reductions, it is not surprising that
home health agencies have been closing at a rate of more than
90 per month since October 1997, leading to a recorded net loss
of over 3,000 agencies nationwide as of July 2000. HCFA data,
from which these figures are drawn, generally lags behind
actual closures. These losses are particularly problematic in
states with large portions of their elderly population living
in rural areas. There are now fewer agencies serving Medicare
patients than there were in 1994.
Agencies Less Able to Provide Needed Care
Staffing levels of home health agencies have also
decreased. From 1996 to 1999, over 133,000 full-time positions
in Medicare-certified agencies were lost. This reduction in
full-time equivalent (FTE) staffing includes 51,395 fewer
nurses, and 54,426 fewer home health aides available to care
for patients in 1999 than were employed by agencies in 1996.
The employment reductions in Medicare are in sharp contrast
to forecasts of continued growth in demand for home care
personnel resulting from strong underlying demographic trends
which include an aging population, increased availability of
in-home medical technology, and consumer preference for
avoiding institutionalization or delaying entrance to nursing
homes. The Bureau of Labor Statistics forecasts an 82 percent
increase in the demand for key home health personnel for the
period 1998 to 2008. Due to the severity of the payment
reductions under the BBA97, agencies increasingly are unable to
offer competitive wages and benefits to attract qualified
staff, and labor shortages are developing across the country.
Agencies Must Subsidize Medicare to Provide Services
Concern about the financial viability of home health
agencies is growing as cost reports are settled and overpayment
notices sent. One fiscal intermediary reported that 91 percent
of home health agencies they oversee had overpayments in 1998,
for a total of over one billion dollars. These figures give an
indication of the extreme degree to which home health agencies
are subsidizing the Medicare home health program.
Further, agencies throughout the nation have reported using
funds other than Medicare to help pay for the care they provide
to Medicare patients. An informal survey conducted during 1999
by NAHC revealed that 93 percent of responding agencies must
find other funding sources in order to maintain home health
access for Medicare beneficiaries. The median subsidy was
$165,000. Agencies are tapping funding sources such as state
and local government monies, local community charitable
funding, profits from other businesses or programs, personal
lines of credit, bank loans, bequests, hospital systems, and
financial reserves in order to continue providing care to needy
and eligible Medicare beneficiaries. This continuing
subsidization of the Medicare program means that agencies are
less able to provide indigent care and other services that had
been previously funded from some of these same sources, and is
threatening the financial viability of many agencies.
Diminished Capacity to Serve Medicare Home Health Beneficiaries
Leads to Access Problems
Studies that have examined access to the home health
benefit since 1997 agree on one central point: for certain
groups of beneficiaries, access to the home health benefit has
decreased. For example, a study of the effects of the BBA97 on
home health agencies conducted by The George Washington
University (GWU) reported that agencies were finding it
increasingly difficult to meet the needs of high-cost patients,
particularly complex diabetics. Among hospital discharge
planners surveyed as part of the GWU study, 68 percent reported
it was increasingly difficult to obtain home health services
for Medicare beneficiaries.
Despite strong evidence that certain groups of eligible
patients are in some cases unable to find home health care, The
Medicare Payment Advisory Commission (MedPAC) in its March 2000
report to Congress equivocates on the issue of access. The
following excerpt from the report is particularly suggestive:
MedPAC sponsored a survey of home health agencies to
examine whether access has been compromised by the IPS (MedPAC
1999). This research reveals that the broad impact of the IPS
[interim payment system] did not fulfill 'the worst
predictions,' but has likely negatively affected beneficiaries
(Abt Associates 1999). Results indicate that the new payment
system has led agencies to exercise cost-cutting measures,
including refusing services to Medicare patients who have
chronic, long-term conditions, especially diabetics. More than
half of agencies surveyed expected to exceed their per-
beneficiary limits and said that, as a result of the IPS, they
would be more likely to decrease their Medicare caseloads, deny
admission to certain types of patients, discharge certain types
of patients, or reduce clinical staff or hours. [emphasis
added]
In its summary of previous research about access, MedPAC's
report states:
The General Accounting Office (GAO) found that access
generally has not been impaired, despite the closure of
approximately 14 percent of home health agencies since 1997
(GAO 1999). But interviews with key stakeholders in areas with
higher frequencies of closures suggest that home health
agencies are asking more detailed information about potential
patients, and that patients who require costlier services are
facing difficulty in finding an agency willing to provide
visits. [emphasis added]
The controversy over the impact on access to home health is
focused on how much access has been compromised, not whether it
has decreased. Several research institutes, including the
Robert Wood Johnson Foundation, have funded studies to look at
the impact of the BBA97 on home health beneficiaries.
Media reports have also identified access problems due to
the BBA97. An editorial in the April 25 edition of The New York
Times notes that spending on home care services has dropped by
over 45 percent since 1997. The Times editorial concludes by
calling for the restoration of the Medicare home health benefit
stating that, ``Congress had reason to rein in ballooning
Medicare costs in 1997. But the nation's oldest and most
fragile citizens should not have to suffer for good intentions
gone awry.''
The Move to Prospective Payment for Home Health: The Future
of Home Care Hangs in the Balance
In the midst of the chaos that the BBA97 created, home
health faces a major change in the Medicare payment system that
is scheduled to take effect October 1, 2000. The IPS that began
in October 1997 will be replaced by a PPS. The concept behind
the new system is to encourage efficient provision of home
health services by paying an amount based on the average
national cost of treating a home health client for 60 days.
Final payments to agencies are based on the average base
payment, and adjusted to take into account patient
characteristics (case-mix) and labor market differences (wage
index). An outlier payment is provided for cases that exceed
the expected costs.
The goal of the PPS for home health is to encourage
efficient provision of services without compromising quality.
Under a cost-based reimbursement system, there is no financial
incentive to reduce utilization because providers are paid for
each unit of service. The IPS introduced a per beneficiary
limit, which discouraged agencies from providing care that
costs more than their average cost of providing care in federal
fiscal year 1994. There is no adjustment for patient need under
IPS; therefore, agencies have a financial incentive to avoid
high-cost patients who may cause the agency to exceed their
aggregate per beneficiary limit. The PPS mitigates this
financial incentive to avoid high-cost patients by paying
greater amounts for higher need patients and by allowing
agencies to be paid for multiple episodes as long as the
patient continues to meet the Medicare home health coverage
criteria.
NAHC has reviewed, digested and analyzed the final PPS rule
as published by HCFA on June 28. The final rule addresses many
of the concerns voiced by NAHC and the home care community.
There are notable ``improvements'' in such areas as increases
in low utilization payment adjustments (LUPA), per visit
payment rates, billing and payment processes that enhance cash
flow, and refinements to the case-mix adjuster. These changes,
however, do not make up for the inadequacy of the overall
funding of the home health benefit, which results in
significant weaknesses in even the best PPS.
In addition, the final rule leaves unresolved some of the
conflicts and concerns expressed with the proposed PPS. Of
particular concern is HCFA's position on medical supplies,
which may mean a dramatically expanded responsibility for home
health agencies. It is NAHC's position that an agency is only
responsible for those medical supplies used to treat illness or
injury that occasioned the need for services.
RECOMMENDATIONS
As noted earlier, all five national home health
associations--NAHC, the American Federation of HomeCare
Providers, the Home Care Association of America, the American
Association for Home Care, and the Visiting Nurse Associations
of America--have reached a consensus on the reforms necessary
to protect the Medicare home health program and the
beneficiaries it serves. The associations have established two
priorities of equal importance--to restore and to preserve the
Medicare home health benefit. All five national home health
associations agree that Congress must take the following action
in this legislative session:
Eliminate the 15 percent cut scheduled to take
effect October 1, 2001.
Although federal budget projections show growth in home
health following implementation of the PPS in October 2000,
these projections are overly optimistic in accounting for the
15 percent reduction in payment rates scheduled for October
2001. Agencies that have eliminated staff, reduced utilization
and cut costs to the bone to cope with the IPS, and whose PPS
payments are based on the IPS budget, will not likely respond
to a payment system that pays them 15 percent below their
previous year's amounts by increasing services. It is much more
likely that a 15 percent cut in payments and below-inflation
update factor will translate into additional agency closures,
layoffs and even greater access problems.
Restore access to care for high needs and
vulnerable patients.
While outright elimination of the 15 percent will relieve
the future threat or further devastation, an immediate infusion
of dollars is necessary if access for certain hard to serve
patients is to be restored. The following actions will help
agencies throughout the country take on these patients with
significantly reduced risk of financial devastation:
Allow an additional expenditure of $500 million in
each of the next five years to be used as outlier payments for
services to the most medically complex and costly patients;
Increase payments for home health services in
rural areas by 10% to address the higher costs of delivering
care in these areas; and
Remove medical supplies from the per episode
payments under the prospective payment system and make payments
under a fee schedule for only the supplies that are actually
used. Such a proposal should be fashioned so that it is budget
neutral.
It is also the consensus of the five national associations
that Congress should direct HCFA to:
Confine the OASIS data collection and reporting
requirements to only Medicare and Medicaid patients;
Limit the OASIS assessment items to only the 20
questions which are actually needed to implement the new PPS;
and
Provide for an emergency payment mechanism during
at least the first six months of the new payment system to
ensure that there is no interruption in payments for services.
Copayments
While not a focus of this hearing, the issue of imposing
copayments on home health services has recently surfaced in the
context of a Medicare prescription drug benefit. NAHC and the
other national associations take serious issue with any
Medicare program ``reforms'' that restrict or eliminates any
current benefits.
Home care plays an important role in the American health
care system. Home care patients tend to be older and poorer
that the average Medicare beneficiary, and in greater need of
care. Copays would penalize the most vulnerable Medicare
beneficiaries because of their illness.
NAHC urges Congress to reject any attempt to place a
copayment on the Medicare home health benefit for the following
reasons:
Copays are regressive and tax the sick;
The elderly already pay high out-of-pocket health
care costs, despite Medicare and Medicaid coverage;
Copays represent an unfunded mandate to the states
whose Medicaid programs will be responsible for the copay if
the beneficiary is dually eligible for both Medicare and
Medicaid benefits;
Copays would be another administrative burden on
home health providers;
Copays discourage use of cost-effective home care
services, which may result in the need to use higher cost care,
thereby increasing Medicare outlays; and
Copays may require further subsidization of the
Medicare program by financially ailing home health agencies
since many low-income beneficiaries will be unable to finance
copays.
CONCLUSION
Mr. Chairman and members of the Subcommittee, these
legislative and regulatory changes would go a long way toward
strengthening the home health infrastructure and restoring
beneficiary access to quality home care services. We thank you
for your sincere interest, and look forward to working with you
and your colleagues as you draft legislation to further refine
the BBA97 with respect to home care services.
Statement of the National Association of Long Term Hospitals,
Stoughton, MA
The National Association of Long Term Hospitals (``NALTH'')
submits this statement setting forth its views concerning
appropriate additional refinements to the Balanced Budget Act
of 1997 (``BBA'') (Public Law 105-33). NALTH wishes to thank
the subcommittee for its willingness to consider further
refinements to the BBA. NALTH prefaces its suggested
refinements noted in this statement with a brief statement
concerning the general condition of long term hospitals. Then
NALTH offers its comments on two specific areas in which NALTH
urges the subcommittee to provide further public policy
direction. Specifically, NALTH's comments focus on the
implementation of a prospective payment system (``PPS'') for
long term hospitals, and changes to rules governing ``provider
based'' designation which were adopted by the Health Care
Financing Administration (``HCFA'') on April 7, 2000 and which
become effective in October of this year.
1. Condition of Long Term Care Hospitals
NALTH's hospital members are established in every region of
the United States. They include a broad range of long term
hospitals which are operated as independent, free standing
institutions and which participate as components of hospital
systems and multiple hospital organizations. NALTH's membership
also includes hospitals which commenced operations prior to the
inception of the Medicare program in 1966, as well as hospitals
which were organized subsequent to the establishment of PPS in
1983 and subsequent to the BBA. NALTH's membership also
includes hospitals located in suburban, rural and urban
centers, some of which operate as referral sources for a broad
geographic patient population, including interstate and, in
some cases, international referrals. The scope and range of
services provided by NALTH to patients is not only reflective
of the statutory requirement that long term care hospitals
experience a 25-day average length of stay, but is more clearly
defined by medically complex patients who require a specialized
multidisciplinary team of medical professionals and the
immediate availability of hospital resources and physicians.
Prior to the BBA, MedPac as well as the subcommittee noted
that older long term hospitals were treated differently and
inequitably by the TEFRA payment system, due to older distorted
cost bases. The BBA contained the following important
provisions affecting long term hospitals.
1) Providing older hospitals the opportunity to change
their base year period to an average of three years' operating
costs;
2) Reducing the capital cost allowance by 15%;
3) Reducing the allowance of bad debts related to Medicare
beneficiaries for non-payment of Medicare co-insurance and
deductible amounts;
4) Allowing state Medicaid programs to ``reprice'' Medicare
payments to, as a practical matter, avoid paying for Medicare
co-insurance and deductible amounts related to Medicare. This
allowed states to avoid making payments to hospitals where
Medicaid payment levels were below Medicare payment levels to
hospitals;
5) Establishing two different limits on target amounts
depending on whether a long term hospital was established
before October 1, 1997, the effective date of the BBA;
6) Reducing loss sharing for hospitals whose costs exceeded
their TEFRA target amount.
NALTH has recently competed a study of its membership which
determined that 76% of their patients are admitted with
Medicare benefits. A segment of these patients exhaust their
Medicare day limit and ``cross-over'' to Medicaid self-pay or
Medigap status. The Medicare program's utilization of long term
hospitals (76%) is much higher than the approximate 39%
Medicare utilization of short-term acute PPS hospitals.
Accordingly, the above-referenced BBA provisions have a more
profound effect on long term hospitals than other hospital
provider types.
As part of its June 2000 report to Congress, MedPac
reported that during the first year of its implementation,
Medicare margins declined from 4.9% to 1.8% (Report at pg.
141). Since long term hospital financial performance is
distributed in a binomial manner due to the inherent inequities
of the TEFRA payment system, long term hospitals with
historically distorted base year periods continue to be placed
at the very bottom of Medicare TEFRA payments and remain in an
inequitable payment position. Due to these circumstances and
the BBA's requirement that virtually every long term hospital
serve Medicare patients at a financial loss given reductions in
allowable capital costs and bad debt allowance, NALTH believes
it is crucial that Congress provide a refined payment structure
and assurances that HCFA will phase in a long term hospital PPS
commencing with cost reporting periods beginning on and after
October 1, 2002 (consistent with Section 123 of the Balanced
Budget Refinement Act of 1999 (``BBRA'') (Public Law 106-133)).
II. Prospective Payment System Issues
It is beyond legitimate debate that a long term hospital
PPS is long overdue. The current ``cost-based'' system is not
case mix adjusted and is demonstrably unrelated to resource
use. In the course of developing a long term hospital PPS,
NALTH determined that the accuracy of the current TEFRA system
as expressed by a relatively low correlation coefficient, (R2)
a mere .19. This means that the current payment system is
inherently wasteful of federal resources and has other
consequences which are undesirable from a public policy
perspective. For example, it is reasonable to expect that long
term hospital growth should reflect of a system which pays for
hospital resources based on case mix and particular resource
use, rather than simply on any cost incurred up to and over all
limits on spending.
Over a 2\1/2\ year period which commenced in 1996, prior to
the BBA, NALTH, in full consultation with HCFA, MedPac and this
subcommittee as well as the Senate Finance Committee, developed
a long term hospital PPS which reweighs current DRGs for long
term hospital patient resource use. This system was developed
for NALTH by the Lewin Group and includes provisions
recommended by HCFA and MedPac such as a capital cost allowance
and 10% outlier pool to reflect the special needs of the long-
term hospital patient population. The predictive accuracy of
this payment system is an R of .61 which is comparable to the
current short-term hospital PPS, and is clearly a better and
more reliable choice for federal payments than the current
TEFRA payment system.
NALTH fully endorses the direction given to this issue by
Section 123 of the BBRA which provides for a DRG-based long
term hospital PPS commencing on or after October 1, 2002.
Section 123 does not, however, authorize necessary PPS
adjustments such as an outlier pool, area wage adjustments,
payment updates, recalibration of DRGs or a disproportionate
share policy. NALTH believes it is very important that Congress
provide HCFA with legislative authorization and direction
concerning these issues. NALTH urges the subcommittee to
consider including standards in these areas in its further
consideration of BBA revisions. In this connection, NALTH asks
the subcommittee to consider legislation filed as S.1783.
NALTH is aware that HCFA is in the process of conducting a
study of long term hospital payment systems. HCFA hopes to use
this study to report to Congress by October 1, 2001 consistent
with Section 123 of the BBRA. NALTH notes that since OBRA 1990,
HCFA has been requested to report to Congress on the
implementation of a long term hospital PPS. The question of
whether or not HCFA issues the report requested by Congress
should not delay the subcommittee's consideration of the
legislation requested by NALTH. MedPac found and stated to
Congress concerning this payment system that its ``a design
[is] as predictive of per discharge resource use as the acute
care PPS. Main advantages of the design include its
administrative simplicity and efficiency, its consistency with
the discharge basis of the current long term hospital payment
system, and its similarity to the DRG-based PPS for acute care
hospitals. This proposal is the most developed of the long term
hospital proposals and should be considered for its potential
as a long term hospital PPS.'' March, 1999 MedPac Report, pg.
96.
NALTH is aware of recent communications with the
subcommittee in which HCFA has indicated that the PPS system
developed by NALTH should be based on a more recent year than
the 1995 cost reporting period used in its validation study.
NALTH fully agrees to do so and believes the most recent year's
experience should be used as a PPS base year. NALTH also notes
that the legislation it supports allows HCFA to adjust long
term hospital DRGs on an annual basis consistent with the
annual recalibration policy for PPS hospitals. Thus, should
HCFA ever wish to revise DRG classifications or weighting
factors if it finds it is appropriate to do so, it would have
ample statutory authority to revise the long term hospital DRGs
as well. NALTH therefore requests that the subcommittee
consider legislation in this area.
III. Provider-Based Rules
On April 7, 2000, HCFA for the first time adopted new rules
governing ``provider-based'' status. The rules are effective on
October 7, 2000. The rules regulate circumstances when a
provider may operate at a location outside its main campus
(i.e., more than 250 yards from its main campus). The
``provider based'' rules are also applicable to any
``facility'' or ``clinic'' a provider may operate on its campus
which would increase operating costs by over 5%.
In the absence of a rule in this area, HCFA established
policy through program memoranda which were directed at
assuring that a ``main'' hospital provider could exercise
appropriate surveillance of conditions of participation and
quality standards at an off campus location. The new rules,
however, have other objectives. They require provider-based
activities, with few exceptions \1\ , to be located in the
``immediate vicinity'' of a ``main'' hospital provider. The
term ``immediate vicinity'' requires that ``at least 75 percent
of the patients served by the facility or organization reside
in the same zip code areas as at least 75 percent of the
patients served by the main provider'' or that 75% of the
patients served at a provider based facility also receive
services at the ``main'' provider. 42 C.F.R. Sec. 413.65(d)(7).
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\1\ Rural health clinics owned by rural hospitals with less than 50
beds and certain outpatient activities which function like federal
qualified health centers.
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The preamble to the rules states that HCFA's policy
objective is the reverse of the long standing federal policy of
encouraging providers to affiliate or find other ways to
efficiently deliver services to a broad patient population. The
preamble to the rule states: ``[B]efore implementation of the
hospital inpatient PPS in 1983, there was little incentive for
providers to affiliate with one another merely to increase
Medicare revenues or to misrepresent themselves as being
provider-based, because at that time each provider was paid
primarily on a retrospective, cost-based system. At that time,
it was in the best interest of both the Medicare program and
the providers to allow the subordinate facilities to claim
provider-based status, because the main providers achieved
certain economies, primarily on overhead costs, due to the low
incremental nature of the additional costs incurred.'' 65 Fed.
Reg. 18,504 (April 7, 2000).
The PPS system's goal of encouraging provider efficiency
has included a broad range of socially productive activities.
These include:
Hospital systems supporting services in
communities where smaller hospitals were in danger of closing
due to a combination of governmental policies and market
conditions;
Redesignation of a hospital as a provider-based
department of another hospital to potentially reduce costs by
eliminating duplication of overhead and simplifying licensure
and certification requirements; and
Long term hospitals being able to provide
specialized services without duplication of overhead in
satellite facilities thereby actively reducing costs and
providing for enhanced access to long term hospital services.
The preamble to the rule goes on to suggest that a major
reason for HCFA's policy change is to discourage excessive
payments due to payments to provider-based facilities which, in
part, may duplicate payments to physicians in the case of
outpatient activity or PPS payments when patients are
transferred to an inpatient PPS exempt provider. NALTH submits
that the answer to HCFA's concerns are found in the PPS system
HCFA is implementing for most classes of providers and the
transfer rule it has already implemented.
In NALTH's view, it is inappropriate that HCFA should undo
by regulation provider relations which have been encouraged for
over eighteen years. The rule at best will reverse cost savings
achieved by providers at the behest of federal policy makers.
The preamble to the rule extends to affected providers the
proposition that they should ask states to license and certify
provider-based activities as new health care providers which
could seek a new Medicare certification. The problems with this
approach are multiple. A number of states have certificate of
need programs which take months or years to pursue. It is also
inevitable that achieving new provider status will require a
separate chief executive as well as other administration and
clinical departments which are necessary for hospital
certification. All of these functions, of course, result in
additional costs. In the context of a new PPS excluded
provider, those are all additional costs which must be paid for
by the federal government.
NALTH believes that this issue is an area in which the
subcommittee should become involved, and NALTH urges the
subcommittee to reverse the rule in favor of further policy
making by Congress after conducting public hearings in this
area.
Statement of Larry S. Gage, President, National Association of Public
Hospitals and Health Systems
The National Association of Public Hospitals and Health
Systems (NAPH) is pleased to submit testimony to the House Ways
and Means Committee Subcommittee on Health in support of
adopting amendments to the Balanced Budget Act of 1997 (BBA)
(P.L. 105-33) to remedy its unintended impact on safety net
hospitals and health systems.
NAPH represents more than 100 of America's metropolitan
area safety net hospitals and health systems. The mission of
NAPH members is to provide health care services to all
individuals, regardless of insurance status or ability to pay.
More than 54 percent of the patients served by NAPH systems are
either Medicaid recipients or Medicare beneficiaries; another
28 percent are uninsured. NAPH members are uniquely reliant on
governmental sources of financing to provide care for Medicare,
Medicaid, and uninsured patients.
The Medicaid and Medicare Disproportionate Share Hospital
(DSH) programs are an important source of financing for
uncompensated care in NAPH member hospitals. In 1998, Medicaid
DSH payments covered 36 percent of the costs incurred in
treating the uninsured and underinsured; Medicare DSH covered
another ten percent of such costs for all NAPH members
nationally. State and local subsidies made up most of the
difference, accounting for 45 percent of total payments for
unreimbursed care.
As was recently reported by the prestigious Institute of
Medicine (IOM) in its November 1999 report, ``America's Health
Care Safety Net: Intact but Endangered,'' a number of factors
are threatening the financial viability of core safety net
providers, including the rising number of uninsured; the impact
of Medicaid managed care; and the erosion of major direct and
indirect subsidies for safety net providers. The cumulative
financial pressure caused by factors could not have been
anticipated by the BBA.
We appreciate Congress' attention to this issue last
November when it approved the Balanced Budget Refinement Act of
1999 (BBRA) (P.L. 106-113). This legislation represented a
significant first step toward easing the impact of the BBA on
providers. As the Committee considers another round of BBA
``givebacks,'' NAPH urges you to enact the top two priorities
of the hospital industry: eliminating the Medicaid DSH payment
reductions imposed by the BBA and repeal the reductions in the
Medicare inpatient update. In particular, we ask you to
consider the BBA's effect on safety net institutions and the
care afforded our nation's poor and uninsured with a relief
package that does the following:
Eliminate Medicaid DSH payment reductions imposed
by the BBA;
Eliminate further cuts to the Medicare DSH
program;
Change the Medicare DSH payment formula to reflect
uncompensated care;
Freeze indirect medical education payments at the
current level; and,
Repeal the BBA's Medicare bad debt reimbursement
payment reductions.
Eliminate Medicaid DSH Payment Reductions Imposed by the
BBA
While we understand that the Medicaid program falls outside
the jurisdiction of the Ways and Means Committee, we believe
that it is critical that any legislation to quell the impact of
the BBA include provisions to eliminate any further payment
reductions to the Medicaid DSH program. Under the BBA, the
Medicaid program absorbed significant cuts, particularly in the
DSH program, which required substantial payment reductions at a
time when our nation's uninsured rates and hospital Medicaid
shortfalls are on the rise. These payments--payments by state
Medicaid programs to hospitals that serve a disproportionate
share of low-income individuals--provide critical support for
safety net providers. Without the Medicaid DSH program, these
providers would be incapable of offering appropriate access to
health care for many low-income Americans.
According to the BBA, a full $10.4 billion was to be cut
from federal Medicaid DSH expenditures to states over the five
years of the cuts, with most of the impact in FY 2000-2002. At
the present time, state DSH programs are scheduled to
experience a 30 percent reduction in FY 2001 and a 37 percent
reduction in FY 2002. Hence, safety net hospitals across the
nation are facing severe cuts in Medicaid DSH funding.
NAPH urges the Congress to include Medicaid DSH relief in
any BBA ``givebacks'' bill it considers.
Legislation to eliminate additional Medicaid DSH reductions
has been introduced in the House: the ``Medicaid DSH
Preservation Act'' (H.R. 3698), a bill to repeal the Medicaid
DSH reductions for FY 2001 and 2002 and allow for CPI-based
increases beginning in 2001, introduced by Rep. Ed Whitfield
(R-KY); and the ``Medicaid Safety Net Hospital Preservation
Act'' (H.R. 3710), introduced by Reps. Diana DeGette (D-CO) and
Brian Bilbray (R-CA), which also eliminates the allotment
reductions imposed by the BBA. These bills enjoy widespread
bipartisan support. Together the House bills have 224
unduplicated cosponsors; similar legislation has been
introduced in the Senate. Clearly, this legislation would
provide substantial relief for already-distressed safety net
providers.
Eliminate Further Cuts to the Medicare DSH Program
Cuts to the Medicare DSH program that were required by the
BBA also have made it difficult for our members to continue to
provide high-quality health care services to the patients they
serve. According to the BBA, Medicare DSH payments were
expected to be reduced by one percent in FY 1998, two percent
in FY 1999, increasing to five percent in FY 2002. While we
were grateful that Congress included a provision in the BBRA to
provide a one-year freeze on the Medicare DSH reductions, the
conditions that necessitated this ``fix'' last year--i.e.,
rising numbers of uninsured, increasing levels of uncompensated
care, escalating hospital costs--continue to plague our
members. Hence, we urge the committee to eliminate any further
reductions to Medicare DSH payments and to restore DSH funding
to pre-BBA levels. In 1998, Medicare DSH payments covered ten
percent of our members' costs for treating the poor and
uninsured in our communities. This funding stream is critical
if our members are to continue to provide care for these
populations.
Change the Medicare DSH Payment Formula to Reflect
Uncompensated Care
In addition to eliminating further Medicare DSH cuts, we
urge the Committee to change the Medicare DSH payment formula
to better reflect the cost of uncompensated care. As you are
aware, the current DSH formula is based on a hospital's
``disproportionate share patient percentage,'' which is a
measure of the proportion of care provided to Supplemental
Security Income (SSI) and Medicaid patients. NAPH believes that
there are a number of problems with this formula, including
that it does not take into account the significant
uncompensated patient care costs borne by some hospitals. The
Medicare Payment Advisory Commission (MedPAC) has expressed
similar concern with the accuracy of the current formula's
underlying measure of care to the poor. A broader measure of
care to the poor that includes uncompensated care is needed to
target DSH payments to those hospitals most in need.
Congress acknowledged the shortcomings of the current
formula for calculating Medicare DSH payments in the BBA, which
required the Health Care Financing Administration (HCFA) to
submit a report to Congress proposing a new formula for making
DSH payments more equitably. The Secretary's report, which was
due to Congress by August 5, 1998, is now long overdue. We hope
the report will be issued soon. In addition, the Committee
required HCFA to begin collecting data on uncompensated care as
part of the BBRA last fall.
We understand that the Committee is considering changing
the formula to eliminate discrepancies between urban and rural
providers. For a number of years, the Prospective Payment
Assessment Commission (ProPAC) and then its successor, MedPAC,
have recommended changing the formula to eliminate urban/rural
disparities and include uncompensated care. Both organizations
have done extensive analyses of the DSH formula, which have
been available to policymakers. The reasons for implementing
change are more urgent than ever--Medicaid enrollment has been
declining as a consequence of welfare reform, the number of
uninsured continues to rise--making the current proxy for low
income care inadequate and increasing the burden of
uncompensated care on safety net providers. In this year's BBA
relief package, NAPH strongly urges the Committee to consider
implementing a two-phased formula change for Medicare DSH that
includes uncompensated care in the formula in a second phase.
Freeze Indirect Medical Education Payments at the Current
Level
As the committee considers legislation to alleviate the
unintended consequences of the BBA, we urge you to prevent
further cuts to Medicare's Indirect Medical Education (IME)
payments and to provide relief for our members who serve as
teaching hospitals.
As you know, under the BBA, IME payments were scheduled to
be reduced by 29 percent over four years for a total of $5.6
billion. While the BBRA included some IME relief, it provided
only a one-year delay of the full implementation of the 29
percent cut. Hence, the BBA IME reduction continues to pose a
significant threat for our members. With average total margins
for teaching hospitals projected to be near zero, IME relief in
this regard is critical. Without IME relief, safety net
teaching institutions will be forced to cut the programs that
provide training for our nation's physicians, nurses and other
health professionals as well as essential research programs.
In particular, we urge the committee's immediate
consideration of the ``Teaching Hospital Preservation Act of
2000'' (H.R. 4239, S. 2394), legislation would stabilize IME
payments and protect Medicare beneficiaries' access to teaching
hospitals.
Repeal the BBA's Medicare Bad Debt Payment Reimbursement
Reductions We urge the committee to repeal the BBA provision
that significantly reduced payments to hospitals and other
providers for bad debts incurred as a result on non-payment for
covered services derived from deductibles and coinsurance left
unpaid by Medicare beneficiaries. This provision has had a
disproportionate effect on safety net providers, who, in
abiding by their mission to provide care regardless of ability
to pay, often fail to receive payment for the services they
provide. Under the BBA, Medicare reimbursement for bad debt
payments were cut by 25 percent in 1998; by 40 percent in FY
1999, and from 2000 forward, these payments will be cut by 45
percent. As the committee considers legislation to alleviate
the impact of the BBA on providers, we urge you pay particular
attention to the effect of payment cuts, such as the bad debt
payment reductions, on safety net providers, who already are
confronting a significant burden of uncompensated care.
* * * * * * * * * * * * * * * * * *
We appreciate the opportunity to share our concerns and
urge the committee to take action on these important issues. We
look forward to working with you further to develop legislative
solutions to the problems of our nation's poor and uninsured.
Statement of Ellen J. Kugler, National Association of Urban Critical
Access Hospitals
Introduction of NAUCAH
The National Association of Urban Critical Access Hospitals
(NAUCAH) is a nation-wide coalition of hospitals that stand at
the forefront of caring for the urban elderly and poor in the
U.S. today. Established in 1993, NAUCAH defines ``urban
critical access'' according to several key measures of the
population and communities that its members serve.
1. The hospital must be located in an urban area, which is
defined by the census bureau as a Metropolitan Statistical Area
(MSA).
2. A minimum of sixty-five percent of the hospital's
patients must have their health care paid by Medicare.
3. A minimum of ten percent of the hospital's patients must
have their health care paid by Medicaid.
4. The hospital must be large and therefore vital to care
in its community--at least 250 beds.
5. The hospital must be private and non-profit.
Approximately 275 hospitals in the U.S. today meet all of
these criteria. Urban critical access hospitals are very much a
part of the health care safety net in the U.S. today. In some
of the communities in which they are located, they work
alongside public hospitals in caring for the urban elderly and
poor. In most communities in which urban critical access
hospitals are located, they are the primary sources of care for
the urban elderly and poor, if not the only source--their
safety net. It is fair to say that without urban critical
access hospitals, it would be difficult for many of the poor
and elderly in these communities to find the health care
services they need.
We appreciate the Chairman's leadership in the assistance
provided last year under the Balance Budget Refinement Act.
However, because an overwhelming majority of care provided at
NAUCAH hospitals is to elderly and low-income patients, and the
Balanced Budget Act had a disproportionate impact on these
facilities, there are a few issues for which we request
additional assistance.
Restore Medicare Bad Debt to 100% for Medicare DSH Hospitals
Historically, Medicare has reimbursed hospitals 100 percent
of unpaid co-payments and deductibles. The Balanced Budget Act
of 1997 (BBA) reduced this reimbursement percentage to 55
percent. This reduction has had a significant impact on NAUCAH
hospitals. NAUCAH hospitals, by definition, treat a large
number of low-income seniors who are the poorest and often
sickest of the elderly. Low-income seniors, at or near the
poverty level, are most likely unable to pay their co-payments
and deductibles.
NAUCAH hospitals, therefore, have higher portions of
Medicare bad debt than other hospitals, and reductions in these
payments impact them to a greater degree.
Another BBA provision, one that requires additional co-
payments on the part of beneficiaries, has increased Medicare
bad debt costs. So, bad debt costs are increasing at the same
time as Medicare's payments for these costs are decreasing.
These reductions and others included in the BBA have negatively
impacted the viability of NAUCAH hospitals throughout the
country.
NAUCAH hospitals rely on Medicare payments for their
survival. These hospitals have few other payment sources to
draw from to cover this Medicare shortfall. Bad debt payments
help NAUCAH hospitals fulfill their missions--providing care to
all, without regard for ability to pay--and at the same time
help Medicare fulfill its goal--to not burden others with
Medicare costs.
Congress should restore Medicare bad debt payments for
Medicare DSH hospitals
Freeze Medicaid Disproportionate Share Reductions at FY
2000 Levels
When Congress modified the Medicaid program in 1984, it
recognized that hospitals which serve unusually large numbers
of Medicaid recipients and other low-income patients, including
the uninsured and the underinsured, would be negatively
impacted by these changes.
To assist these hospitals, it mandated Medicaid
Disproportionate Share Hospital (DSH) payments over and above
fees for services provided to Medicaid recipients. Hospitals
use these supplemental payments to help shoulder their
disproportionate share of the financial burden of caring for
poor, uninsured, and underinsured patients.
In the Balanced Budget Act of 1997 (BBA), Congress cut
$10.4 billion over five years from the federal Medicaid DSH
program through a system of strict state DSH caps. Some State
DSH allotments will be reduced by as much as 40 percent over
this five-year time period.
Cuts of this magnitude are extraordinarily difficult to
absorb, and render monumental challenges for all critical
access hospitals.
At a time when our nation's uninsured rate has climbed
above 43 million, and is rising at more than 100,000 people
every month, it seems counterintuitive to reduce much needed
Medicaid DSH payments to our nation's safety-net hospitals.
NAUCAH supports the passage of H.R. 3710, H.R. 3698, S.
2299 and S. 2308. All bills freeze Medicaid DSH cuts at fiscal
year 2000 levels, thereby, mitigating the fiscal year 2001 and
2002 reductions.
Congress should freeze Medicaid DSH reductions at FY 2000
levels
Preserve Medicare Disproportionate Share for the Urban
Safety Net
Medicare Disproportionate Share Hospital (DSH) payments are
an important part of the overall revenue of private safety-net
hospitals. Disproportionate Share payments are made as part of
the Medicare inpatient program and are intended to help ensure
Medicare patients access to hospitals that also treat a
significant number of low-income individuals.
This program is especially important for private safety-net
hospitals since they treat a significant number of both
Medicare and low-income patients.
The Medicare DSH program pays hospitals based on a formula
that includes Medicare, SSI and Medicaid. The program pays
about $4.7 billion to over 1,700 hospitals nationwide.
In 1997, as part of the Balanced Budget Act (BBA), Congress
required the Secretary of Health and Human Services to propose
recommendations for a new Medicare DSH formula. Due to the lack
of available and accurate data, however, HCFA had not made
revisions to the DSH formula.
In 1999, Congress revisited the DSH formula. As part of the
Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of
1999 (BBRA), Congress acknowledges that accurate data is not
available and requires HCFA to begin collecting the data
necessary to develop a new formula that takes into account the
cost of serving uninsured and underinsured patients. Data will
be collected on state and local indigent care programs, as well
as uncompensated care (bad debt and charity care). It is
expected that HCFA will devise a standard definition of
uncompensated care before attempting to collect accurate and
updated uncompensated care data. Data on offsetting revenue is
also expected to be collected.
Recommendations
No new DSH formula should be implemented until
accurate data is available to measure the impact on hospitals.
If the DSH thresholds are changed to add rural
hospitals, new funding should be allocated to support the
additional payments.
Congress should preserve Medicare DSH payments at their
current level for urban private safety net hospitals. Any
change in thresholds for rural hospitals should be funded with
new money so as not to impose additional reductions on private
safety net providers.
Restore Medicare DSH Payments
Under the Balance Budget Act, Medicare DSH payments were
reduced by five percent over five years. As part of the Balance
Budget Refinement Act, Congress froze one year of these
reductions.
By freezing the reductions, Congress has acknowledged that
hospitals that treat a significant number of low-income and
elderly patients are ill-equipped to deal with significant
Medicare reductions.
The Medicare and Medicaid program covers most of the
patients treated at urban critical access hospitals. Because of
the communities they serve, they treat very few patients
covered by private insurance. Thus, the Balanced Budget Act
reductions in Medicare and Medicaid have created severe
financial hardships.
NAUCAH requests restoration of full Medicare
disproportionate share payments.
Statement of Ortho-Clinical Diagnostics, Johnson & Johnson
Thank you for providing the opportunity to submit a
statement for the record on the important task before the
Subcommittee of addressing refinements to the Balanced Budget
Act of 1997 (BBA). We appreciate the Subcommittee's commitment
to identify appropriate refinements to the major reimbursement
changes wrought by the BBA--changes that have had an impact not
only on the primary care providers but also on the entire
supply chain that is so critical to quality patient care.
We wish to express our support for additional funds for
providers to assure patient access to the safest possible
blood. We support the proposal of the American Association of
Blood Banks (AABB), America's Blood Centers (ABC), and the
American Red Cross. The proposal would (1) Increase the
Medicare hospital inpatient ``market basket'' by approximately
0.45% to cover the added costs associated with blood safety
enhancements that are FDA recommended and/or adopted as the
standard of care and (2) Direct HCFA to develop a specific
mechanism in the hospital market basket to account for changes
in costs for blood and transfusion therapy-related products and
services from year to year.
Ortho-Clinical Diagnostics has a rich history in and a deep
commitment to blood research and technological advances to
ensure blood safety. Led by pioneers such as Dr. Philip Levine,
one of the discoverers of the Rh factor in blood, the Company
has long provided the medical community and patients with
important technology used in transfusion medicine. Our products
span the transfusion medicine continuum, from infectious
disease testing at donor screening centers to blood typing and
crossmatching products used in hospitals. We are constantly
striving to improve our products and to develop new technology
to respond to patient needs. In addition, Johnson & Johnson is
a major contributor to organizations and initiatives dedicated
to increasing blood donations and maintains a program of
regular on-site blood drives targeted to its employees. For the
past four years, Johnson & Johnson has been #1 in corporate
blood drives, and last year collected nearly 40,000 units of
blood.
We feel compelled to add our voice to those of the AABB,
ABC, and ARC because, quite simply, blood is a critical public
health issue whose infrastructure is fragile and vulnerable.
Congress needs to step in and help strengthen that
infrastructure through legislation that will inject a dose of
financial assistance into an ailing system.
The following are background points and underlying reasons
for our support of this proposal:
Patient access to the safest available blood
supply is a national public health priority.
Current Requirements
Americans deserve and demand access to the safest
possible blood supply. In fact, safe blood is a national public
health priority. Recognizing this health priority, the blood
banking and transfusion medicine community, and federal
government have adopted and continue to adopt incremental blood
safety enhancements, including new infectious disease tests and
other safety-related technologies.
FDA currently requires the following tests be
conducted on 100% of the nation's blood supply:
Hepatitis B surface antigen (HBsAg)
Hepatitis B core antibody (anti-HBc)
Hepatitis C virus antibody (anti-HCV)
HIV-1 and HIV-2 antibody (anti-HIV-1 and anti-HIV-
2)
HIV p24 antigen
HTLV-I and HTLV-II antibody (anti-HTLV-I and anti-
HTLV-II)
Serologic test for syphilis
Confirmatory tests if any of above are positive
Recent Developments
Blood currently costs $80 to $120 per pint. New
safety technology is expected to add $40-$50 per pint in the
short term. This amount is likely to increase as new safety
technology is adopted to make blood and blood products even
safer. In testimony before this Committee, the American
Hospital Association has identified increases in the cost of
blood as an additional financial issue for their members.\1\
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\1\ ``The cost of blood also is on the rise. The Food and Drug
Administration soon will approve new blood screening techniques to make
our blood supply safer. But quality improvements will increase the cost
of blood by $40 to $50 a pint, a 50 percent jump. New techniques, such
as ``viral inactivation,'' are expected to double or triple the cost of
blood. However, the cost of these new techniques is not included in
today's measure of hospital inflation.'' Statement of Don Richey,
Administrator, Guadalupe Valley Hospital, Seguin, Texas, on behalf of
the American Hospital Association, July 25, 2000
---------------------------------------------------------------------------
Future Threats to the Blood Supply
According to FDA, ``There are constantly emerging
potential threats to the blood supply a Examples include new
HIV variants; new hepatitis agents; human herpes virus type 8;
Creutzfeld-Jakob Disease; human parvovirus B19; and bacterial
contamination of blood products.'' (Source: www.fda.gov) FDA
has indicated it will impose testing obligations as additional
relevant communicable disease agents are identified and FDA
approves tests for such agents.''
How Technology Creates Safer Blood
For many years, Hepatitis C occurred among 5
percent or more of all blood recipients. In 1991, the incidence
of transfusion-related HCV occurred in 1 to 4 percent of
transfusion recipients. Today, after more than seven years of
testing for HCV, the risk of HCV transmission through
transfusion is less than 1 per 100,000 screened units of blood.
New technologies such as nucleic acid amplification (NAT) and
Ortho-Clinical Diagnostic's HCV antigen test (not yet approved
in the U.S.) may reduce the risk to 1 per 500,000 to 1 per
1,000,000. (Source: www.aabb.org) Today, the risk of getting
HIV from a single blood transfusion is about 1 in 676,000.
New blood safety technology is routinely adopted
in foreign countries sooner than it is available here. While
there are a variety of reasons for this phenomenon, the
reimbursement and regulatory environments are among the factors
that contribute to lack of access to such technology for
American patients. For example, we understand that
leukoreduction is now mandated in at least 9 countries. Another
example is our own company's HCV Core Antigen Test--one that we
believe is substantially equivalent in performance to current
NAT testing. The test is available outside the United States
for single unit testing rather than as a pooled test, in an
Elisa microwell plate format that is an established technology.
Even the smallest of blood centers are familiar with this
technology. France--a country well known for its blood safety
vigilance--has recently approved this test for donor screening.
We intend to submit an application to the FDA for U.S.
approval.
The Transfusion Process and the Potential for Errors and
Accidents
The transfusion process requires blood typing and
crossmatching testing to ensure that the recipient's blood is
compatible with the donor's blood. In addition, it requires
processes, procedures, and trained personnel to ensure that the
right unit of blood actually goes to the patient.
There are only two suppliers of the important
blood typing and crossmatching testing products that are so
critical to a safe transfusion: our company, Ortho-Clinical
Diagnostics and a small company called Immucor. Both companies
are challenged by the dynamics of the marketplace. There is
little financial incentive to continue to supply these products
thus creating a precarious supply chain. Failure to supply the
market with these products for whatever reason--financial,
production, FDA--could cause major problems in the transfusion
process.
Errors and accidents in the transfusion process
contribute to unacceptable mortality and morbidity. The risk of
a fatal transfusion reaction caused by errors such as
administration of an ABO-incompatible unit to a patient is
estimated to be as high or higher than the risk of receiving
HIV or HCV-infected blood. The recent Institute of Medicine
study highlighted the need for the medical community to respond
to medical errors and accidents. Insufficient hospital
reimbursement for blood can result in staff and resource
cutbacks that can increase the risk of errors and accidents in
the blood transfusion process.
The Need for Adequate Reimbursement
Safety enhancements add to the cost of each blood
component transfused in the United States. Adequate Medicare
reimbursement is necessary to ensure patient access to new
technologies that improve blood safety. Because the vast
majority of blood products and services are provided in the
inpatient setting, it is especially important that inpatient
reimbursement rates accurately reflect increases in the cost of
these products and services
Inadequate reimbursement has an adverse impact on
all parts of the blood continuum, including manufacturers.
Economic factors affect decisions to develop new technology
that may improve patient care, reduce error, and ensure the
safest possible blood products and services. New threats to the
blood supply will require new technology to address those
threats. Without adequate reimbursement, the health and
vitality of the innovators in this industry--who develop the
new technology to make blood and blood transfusions safer--is
jeopardized.
Non-profit organizations dominate the blood
collection industry. These organizations are well known for
their ability to collect blood within local communities for
both routine and emergency use, and for their community ties,
name recognition, and a remarkable dedication to blood safety
and availability goals. They are an important component in the
blood supply chain. Many of these entities and hospital blood
banks have suffered financially due to inadequate reimbursement
and the effects of the Balanced Budget Act of 1997 and managed
care cost-cutting measures.
Additional costs of testing and other safety
measures without concomitant reimbursement will adversely
affect blood centers' other cost activities--such as donor
recruitment--that could also adversely affect the blood supply.
As the Department of Health and Human Services
(HHS) stated in its ``Five Point Plan on Strategies to Increase
the Blood Supply:'' ``The economic and competitive pressures of
health care today make it nearly impossible for blood banks to
recover the cost of new innovations, even when such measures
are required. These economic limitations are a strong
disincentive for change.''
The Congress and the Administration has recognized
the importance of appropriate blood reimbursement in the
outpatient setting. (See Attachment.) This same rationale
should be the basis for appropriate adjustments to
reimbursement methodology for blood used in the inpatient
setting.
In conclusion, we urge the Congress to help providers
achieve our common public health mission to ensure patient
access to the safest possible blood. We urge enactment of a
Balanced Budget Refinement Act--Part 2--that includes
provisions to increase the market basket by approximately .45%
and that directs HCFA to develop a mechanism for blood and
transfusion-related products that would more accurately and
specifically capture the increased costs of blood on an annual
basis.
Thank you for the opportunity to comment.
Attachment
Recent Comments from Government Sources on Blood Reimbursement
Whereas the Advisory Committee on Blood Safety and
Availability is dedicated to insuring patient access to safe
blood products and services, and whereas the Committee
recognizes that fair, accurate, and timely reimbursement,
including Medicare, for blood-related therapies is critical to
insuring patient access to the safest possible blood, the
Advisory Committee, consistent with its prior recommendations,
recommends that the Secretary and Congress support legislation
to insure fair and accurate reimbursement for inpatient blood-
related products and services. Such legislation should provide
sufficient funding to account for increased blood-related
costs, including those associated with new blood safety
measures, and require that these costs be reflected in annual
updates of inpatient diagnosis related groups.''(emphasis
supplied)
Letter from Michael Hash, Deputy Administrator, Health Care
Financing Administration dated October 19, 1999 to Congressman
Bill Thomas on the Administration's plans to adjust the
Outpatient Prospective Payment System regulation to respond to
concerns raised about blood
``We would also adjust the payment for blood and blood
products to reflect blood testing requirements that have been
mandated since 1996, and we would expect to make further
adjustments in the future if additional testing requirements
with significant costs are imposed.''
Conference Report accompanying the Balanced Budget
Refinement Act of 1999
``The parties to the agreement understand that the
Secretary is committed to creating separate payment categories
for blood, blood products and plasma-based and recombinant
therapies. The parties to the agreement continue to be
concerned that the inadequate payment for these products and
therapies could represent a barrier to patient access.
Accordingly, the parties to the agreement expect the Secretary
to carefully analyze potential patient access issues and create
sufficient payment categories to adequately differentiate these
products.''
``Five Point Plan on Strategies to Increase the Blood
Supply:'' The Department of Health and Human Services (HHS)
``The economic and competitive pressures of health care
today make it nearly impossible for blood banks to recover the
cost of new innovations, even when such measures are required.
These economic limitations are a strong disincentive for
change.''
July 25, 2000
The Honorable Bill Thomas
Chairman
Subcommittee on Health
House Ways and Means Committee
1136 Longworth House Office Building
Washington, DC 20515
Dear Chairman Thomas:
On behalf of the Practice Expense Fairness Coalition, which
represents organizations with a combined membership of over 350,000
physicians, we are submitting this statement for the record of today's
hearing on additional Medicare refinements to the Balanced Budget Act
of 1997 (Public Law 105-33).
Specifically, we are contacting you to (1) express our strong
opposition to a proposal by the Halt2000 coalition to stop
implementation of resource-based practice expense payments (RBPEs) this
year as part of a Medicare giveback bill, and (2) offer an alternative
that would address concerns about underfunding of physician services--
while preserving the mandate that payments for physician services be
based on the relative costs of each service, based on the best
available data.
The Balanced Budget Act of 1997 mandated that implementation of the
new practice expense payment method be phased in over four years, to
allow for methodological refinements during each year of the phase in,
following a one year delay in implementation. The Halt 2000 proposal
would undo this carefully-crafted compromise by stopping the transition
to RBPEs for all services, except office visits, at the current blend
of 50% charge-based, and 50% resource-based, practice expenses. The 50%
charge-based portion would perpetuate the inequities in payment that
Congress resolved to end when it enacted the BBA 97 compromise. Even if
a few office visit services were exempted from the halt, the vast
majority of physician services would continue to be paid in large part
based on inaccurate historical charges, not data on the costs of each
service.
Our coalition has a better alternative to Halt 2000. This
alternative would address concerns about underfunding of physician
services, due to past miscalculations of fee schedule updates, by
mandating a 3% increase in the dollar conversion factor for the
Medicare fee schedule. Unlike the Halt 2000 proposal, it would not
abruptly withdraw support for the ongoing transition to a payment
system that bases Medicare payments on the relative costs of each
service, based on the best available data.
The General Accounting Office in February 1999 reported ``HCFA's
methodology uses what are generally recognized as the best available
data on resource-based practice expense values'' (emphasis added). So
the question is not if HCFA's methodology is fundamentally flawed--the
GAO clearly said that it was not. The refinement process mandated by
the BBA 97 is the way to get further improvements made in HCFA's data
and methodology. In fact, HCFA's recently-published proposed rule on
the CY 2001 fee schedule includes numerous changes that directly
respond to concerns expressed about its data, including restoring
payments for non-physician clinical staff costs for certain services
done in the hospital and incorporating more recent survey data into
practice expense calculations.
As Congress considers the Medicare giveback legislation, we urge
you to support the Practice Expense Fairness Coalition's alternative
proposal for a 3 percent increase in the dollar conversion factor for
the Medicare fee schedule. Under our alternative, every physician and
every specialty would be better off than under current law. By
contrast, under the Halt 2000 plan, some physicians would be worse off
and others better off than under current law. The 3 percent solution is
simple and fair to all physicians. Further details are in the
attachment.
Any questions that you or other members of the subcommittee may
have about the coalition's 3 percent solution should be directed to Bob
Doherty, American College of Physicians-American Society of Internal
Medicine, 202/261-4530; Laura Saul Edwards, American Academy of
Dermatology, 202/842-3555; or Jake Culp, American Academy of Family
Physicians, 202/232-9033.
Sincerely,
American Academy of Dermatology
American Academy of Family Physicians
American Academy of Pediatrics
American College of Physicians-American Society of Internal
Medicine
American College of Rheumatology
American Osteopathic Association
Renal Physicians Association
A Proposal from the Practice Expense Fairness Coalition
Increasing Medicare Payments to Physicians and Continuing
the Transition to Resource-based Practice Expenses: A True
``Win-Win'' Proposal for Medicine
The Practice Expense Fairness Coalition (PEF Coalition)
represents organizations with a combined membership of over
350,000 physicians--a majority of physicians in the United
States. The coalition's members include the American Academy of
Dermatology, American Academy of Family Physicians, American
Academy of Pediatrics, American Society of Clinical Oncology,
American College of Physicians-American Society of Internal
Medicine, American College of Rheumatology, American
Osteopathic Association, and the Renal Physicians Association.
In the Balanced Budget Act of 1997, Congress mandated that
resource-based payments for physician practice expenses be
phased in over a four-year period. During the transition,
practice expense payments are a blend of historical charges--
which overvalued many hospital-based procedures compared to
office-based services--and resource-based practice expenses
(RBPEs). Under RBPEs, payments will be based on relative
differences on the costs of providing services, based on the
best available data.
A coalition of other physicians organizations is now urging
Congress to halt the transition to RBPEs--at the current blend
of 50% charge-based and 50% resource--based amounts. A small
number of office visit codes would be exempted from the halt;
they would be allowed to increase to the full CY 2002 RBPE
levels. The Halt 2000 coalition estimates that exempting office
visits from the halt will cost $2 billion in CY 2001, and $8
billion over five years. The Halt 2000 coalition estimates that
average payments to physicians would increase by 3 percent
under their proposal, although the impact on individual
physicians would vary greatly depending on how much they stand
to gain or lose under RBPEs. Some would do better, but other
worse, under the Halt 2000 proposal.
The PEC Fairness Coalition strongly urges Congress to
reject the Halt 2000 proposal and instead support the following
alternative:
1. Increase the Medicare dollar conversion for factor by 3
percent (the same amount of increased spending that would
result from the Halt 2000 proposal). An increase in the
Medicare conversion factor will benefit all physicians
equally--a primary care physician and a surgeon will get
exactly the same percentage increase. Unlike halt 2000, which
asks Congress to choose sides between ``winners'' and
``losers'' under RBPEs, every physician would be better off
under a conversion factor increase that under current law; no
one would be worse off. Further, a conversion factor increase
would help restore cuts in the conversion factor that resulted
from HCFA's mistakes in calculating the sustainable growth rate
(SGR) in 1998 and 1999. Although Congress mandated last year
that HCFA use more accurate data to correct the SGR, HCFA has
refused to make physicians whole for the previous mistakes in
calculating the SGR. Therefore, an across-the-board increase in
the CF is fully consistent with Congress' desire to restore
inappropriate cuts caused by policies that resulted from the
BBA 97. Finally, a conversion factor increase is simple:
Congress can simply direct HCFA to increase the conversion
factor by a set percentage or dollar amount. By contrast, the
Halt 2000 proposal would require that Congress consider very
complex methodological issues and set fees for thousands of
physician services.
2. Consistent with practice expense legislation enacted by
Congress in 1997 and 1999, continue to support the full RBPE
transition for all services, with oversight of HCFA activities
to assure that improvements are made as appropriate.
Despite claims by the Halt 2000 campaign that HCFA's
methodology is fundamental flawed, the General Accounting
Office (GAO) found that ``HCFA's new methodology is an
acceptable approach for revising Medicare's practice expense
payments...HCFA's methodology uses values...believe that
incurred costs [as proposed by HCFA] is consistent with
traditional cost accounting practices'' (Source: GAO: Medicare
Physician Payments: Need to Refine Practice Expense Values
During Transition and Long Term, February, 1999). The GAO did
not support a halt to the transition. Rather, the GAO
concluded, ``Concerns about data and methodological issues can
be addressed during the phase-in period.'' Further, the GAO
found that a coalition consisting of the same groups that are
now supporting a halt in the transition ``said they were
pleased that we support HCFA's revision...they believe that the
new methodology more effectively recognizes differences in
practice expense payments among physicians specialties.''
Last year, Congress mandated that HCFA consider additional
data from medical specialty societies to supplement the survey
data it is currently using. HCFA has published a proposed rule
to accept such data, and has already agreed to use data from a
survey conducted by an association representing thoracic
surgeons. Other improvements can and should be made through the
refinement process, with oversight by Congress as needed. HCFA
should use more up-to-date survey data that is already
available from the American Medical Association. The RVUs
Update Committee (RUC), a multi-specialty committee chaired by
the AMA, is making substantial progress on refining practice
expense data for specific services. To illustrate, the RUC
recently reached a multi-specialty consensus on the practice
expenses of office based evaluation and management services--
the lynchpin of the entire Medicare fee schedule and the
services that one might have expected would be the most
difficult to resolve. If a consensus can be reached on F/M
services, it should be possible to develop a consensus on
refinements for other services. HCFA should also include the
costs of non-physician clinical staff in the office for
facility patients when supported by survey data and expert
panels. Such improvements can be made under existing law and
the existing process, with oversight by Congress, without
Congress stepping in to halt the transition. By contrast, Halt
2000 would forever lock practice expense payments at the CY
2000 levels--precluding further refinement and improvement or
updating of practice expense payments based on more recent
data.
Congress should support the only true ``win-win'' proposal
on the gable: an increase in the dollar conversion factor for
the Medicare fee schedule and support for continuing the
transition to RBPEs. Every physicians would gain equally,
Congress would not have to choose sides over practice expense
allocations, a change in the conversion factor would be simple
to mandate and implement, and Congress would not be forced
again to deal with divisive and complex issues of re-allocating
practice expense payments that it thought it has resolved for
good in the BBA 97. For more information about the PEF
Coalition's proposal, contact Laura Saul Edwards, American
Academy of Dermatology, (202) 842-9033; or Bob Doherty,
American College of Physicians-American Society of Internal
Medicine (202) 261-4530.
July 25, 2000
The Honorable William M. Thomas
Chairman
Health Subcommittee
House Ways and Means Committee
1136 Longworth House Office Building
Washington, DC 20515
Dear Chairman Thomas:
The Practice Expense Coalition, representing 40 physician
organizations, teaching hospitals, medical schools, and clinics, is
pleased that the Subcommittee is considering legislation to provide
health care providers relief from the Medicare provisions enacted in
the Balanced Budget Act of 1997 (BBA 97). As the Subcommittee prepares
for its July 25 hearing, we would like to bring to your attention one
such provision which involves the ``practice expense'' component of the
Medicare Physician Fee Schedule
As you may recall, based on the belief that office-based
specialties probably were not recouping their costs of practice, in
1994 Congress directed the Health Care Financing Administration (HCFA)
to change the way Medicare pays for physicians' practice expenses.
After extensive criticism of HCFA's initial flawed proposal, Congress
intervened and included detailed instructions for developing the new
practice expense relative value units (PE RVUs) in the BBA 97. Because
of the endless string of yearly budget deficits, the only feasible way
to provide additional funds to primary care physicians was through this
budget-neutral legislation.
The transition is now at the halfway point, with the new system to
be fully implemented in 2002. However, HCFA has failed to comply with
nearly all the mandates of the BBA 97, and the current methodology and
data do not (and likely will never) accurately reflect physicians'
actual practice costs. As a result, practice expense payments have
become seriously distorted, creating a system that lacks fundamental
fairness and is having detrimental effects on our nation's physicians,
hospitals, clinics and patients.
Many believe it is therefore time to acknowledge that this task is
far more complex than ever contemplated and may never be possible. For
example, in a response to a question from Chairman Bill Young at a
February 2000 House Appropriations Committee hearing, HCFA's
Administrator Nancy Ann Min-DeParle stated that ``we do not believe
that it is possible to determine actual physician expenses associated
with providing services to Medicare patients.'' In addition, the
previous budgetary constraints have made it even more difficult for
HCFA to develop a system that fairly reflects physicians' practice
costs.
This problem can be fixed, however. To meet the goal of increasing
reimbursement for primary care office services, while minimizing the
detrimental effects for many specialists, the Practice Expense
Coalition urges Congress to seize the opportunity presented by the
budget surplus and amend the practice expense provisions of the
Medicare law. Our proposal would:
Halt the transition at the current blend of 50% 1998 PE
RVUs and 50% projected 2002 PE RVUs practice expense values; and
Allow scheduled increases for certain office and
consultation services to proceed immediately to their projected 2002
amounts.
Under this proposal, the resource based practice expense values
would be subject to refinement through the regular 5-year review
process currently in place.
As the Subcommittee moves forward with the development of its plan
to provide BBA 97 relief for Medicare providers, we ask that you
consider including our practice expense proposal in your legislative
package. It is a win-win solution for all physicians.
Thank you for considering our requests and for your assistance on
this important issue.
Sincerely,
American Academy of Facial Plastic and Reconstructive Surgery,
American Academy of Ophthalmology,
American Academy of Orthopedic Surgeons,
American Academy of Otolaryngology--Head and Neck Surgery,
American Association for Thoracic Surgery,
American Association of Clinical Urologists,
American Association of Neurological Surgeons,
American College of Cardiology,
American College of Gastroenterology,
American College of Osteopathic Surgeons,
American College of Radiology,
American College of Surgeons,
American Gastroenterological Association,
American Medical Association,
American Society for Bariatric Surgery,
American Society for Gastrointestinal Endoscopy,
American Society of Anesthesiologists,
American Society of Cataract and Refractive Surgery,
American Society of Echocardiography,
American Society of General Surgeons,
American Society of Nuclear Cardiology,
American Society of Plastic Surgeons,
American Society for Therapeutic Radiology and Oncology,
American Society of Transplant Surgeons,
American Urological Association,
Association of American Medical Colleges,
Association of Freestanding Radiation Oncology Centers,
Cleveland Clinic Foundation,
Congress of Neurological Surgeons
International Society for Cardiovascular Surgery, North American
Chapter
National Coalition of Quality Diagnostic Imaging Centers
North American Society of Pacing and Electrophysiology
North American Spine Society
Outpatient Ophthalmic Surgical Society
Society for Vascular Surgery
Society of American Gastrointestinal Endoscopic Surgeons
Society of Cardiovascular & Interventional Radiology
Society of Gynecologic Oncologists
Society of Surgical Oncology
Society of Thoracic Surgeons
Summary of Proposed Practice Expense Amendment
Under current law, Medicare pays physicians on the basis of
a resource-based relative value scale, which is divided into
three components--physician work, malpractice and practice
expenses. The practice expense relative value units currently
are based on a percentage of physician charges and practice
expense resource costs. For 2000, these units are based on 50
percent of charges and 50 percent of practice expense resource
costs involved in furnishing a service. By 2002, practice
expense payments will be based 100 percent ``resource-based.''
The proposed amendment would----
Maintain for 2000 and subsequent years the 50/50
formula for determining practice expense relative value units,
which would also apply for purposes of adjustments to the
conversion factor for anesthesia services. There would be
exception for certain office visit and consultation services,
which would be based entirely on the relative practice expense
resources involved in furnishing the service.
Prohibit the Secretary from reducing the
conversion factors or relative value units for physicians'
services to assure that Medicare Part B expenditures resulting
from the foregoing amendment are budget neutral.
Require the Secretary in consultation with MedPAC
and physician organizations to conduct a five-year review of
the relative value units, with necessary adjustments for
changes in medical practice and new data on relative value
components. With respect to practice expense relative value
units, the five-year review would not begin sooner than 2005
and would be limited to the portion of the values representing
the relative practice expense resources.
Require the Secretary in consultation with
physicians to annually establish or adjust relative value units
for new, revised and deleted codes, and publish an explanation
of the basis for such adjustments.
Allow the Secretary to use extrapolation and other
techniques to determine relative practice expense resources to
reflect coding changes, the addition of new procedures or where
specific data are not available.
Proposed Practice Expense Changes in Medicare Fee Schedule (assumes no changes in conversion factor or
utilization)
----------------------------------------------------------------------------------------------------------------
2001 Medicare
1998 Medicare Currently Projected Payments with Halt Change 1998-2001
Specialty Payments (Millions) Change 1998-2002 and Exemption of E&M with Halt and
(Millions) Exemption
----------------------------------------------------------------------------------------------------------------
ALL $44,100a 0% $45,410 3%
Anesthesiology $1,675 -9% $1,606 -4%
Cardiac Surgery $328 -17% $301 -8%
Cardiology $3931 -12% $3,778 -4%
Clinics $1,428 -4% $1,444 1%
Dermatology $1,091 20% 1,233 13%
Emergency Med. $850 -12% $804 -5%
Family Practice $2,886 8% $3,171 10%
Gastroenterology $1,211 -18% $1,127 -7%
General Practice $976 5% $1,048 7%
General Surgery $1,874 -8% $1,833 -2%
Hermatology Onc. $583 6% $629 8%
Internal Medicine $6,238 2% 6,564 5%
Nephrology $928 -6% $909 -2%
Neurology $804 -1% $826 3%
Neurosurgery $319 -12% $306 -4%
Obstetrics/Gyn. $389 6% $421 8%
Ophthalmology $3,399 6% $3,694 9%
Orthopedic Surg. $2,000 0% $2,050 2%
Otolaryngology $569 11% $629 11%
Pathology $513 -5% $500 -3%
Plastic Surgery $196 4% $204 4%
Psychiatry $1,100 0% $1,103 0%
Pulmonary $1,031 -6 $1,023 -1%
Radiation Onc. $619 -6% $604 -2%
Radiology $2,976 -12% $2,802 -6%
Rheumatogy $274 19% $319 16%
Thoracic Surg. $545 -16% $503 -8%
Urology $1,165 6% $1,243 7%
Vascular Surg. $319 -12% $304 -5%
Other Phys. $1,206 -1% $1,247 3%
Chiropractor 4417 -8% $400 -4%
Nonphys Pract. $891 2% $904 1%
Optometrist $347 31% $453 31%
Podiatry $949 11% $1,028 8%
Suppliers $379 11% $400 5%
----------------------------------------------------------------------------------------------------------------
a: Numbers may not add due to rounding
*% based on total payments (not just PE values)
**Exempted codes include: 99201-99205, 99211-99215, 99241-99245, 92002, 92004, 92012, 92014. Calculators based
on 1998 utilization
EXECUTIVE SUMMARY
Since 1991, the Health Center Financing Administration
(HCFA) of the U.S. Department of Health & Human Services has
been in the process of implementing a transition to a new
system of payment for physician services under Medicare--the
Resource-Based Relative Value System (RBRVS). Initially,
implementation of this system involved replacing the prior
system of reimbursements were based, in part, on a fee schedule
intended to reflect more closely the physician work effort
involved in rendering specific services to patients.
In 1994, the outgoing Congress directed HCFA to implement a
further modification to the system, under which the portion of
the historic fee base not paid under the work-based fee
schedule--the so-called ``practice expense'' component of the
schedule--would also be converted to a ``resource-based''
methodology.\1\ Since that time, HCFA has made a concerted
effort to implement such a system.
---------------------------------------------------------------------------
\1\ A third, smaller component of physician reimbursement--for
malpractice expense--has also been implemented on a comparable basis.
---------------------------------------------------------------------------
Its first effort in this direction, proposed for
implementation in calendar year 1998, was stayed by
Congressional action in the Balanced Budget Act of 1997, which
also dictated standards HCFA must apply in modifying the
approach it has previously proposed. Subsequently, HCFA has
implemented, by regulation, a four-year transition to a
resource-based practice expense payment methodology over the
1999-2002 period. Because of ongoing controversies over the
data HCFA is using, and the methodologies it is employing to
determine payments under this system, HCFA is engaged in a
``refinement'' process, under which the ``full implementation''
values for 2002 are being modified annually to reflect ongoing
efforts to address these controversies.
The Moran Company was engaged by the Practice Expense
Coalition, a joint effort formed by a group of concerned
medical specialty societies, to evaluate this history. The
question we have been asked to address is whether the technical
problems that have been raised about this methodology can, in
fact, be ``fixed'' through technical changes to the system HCFA
has implemented, either by HCFA, or by Congressional action to
specify a new theory of resource-based practice expense.
Our findings are as follows:
The technical problems HCFA has faced in
implementing this system are, in an important sense, inherent
in the policy of ``resource-based practice expense,'' which
requires HCFA to make detailed imputations of physicians
overhead costs to over 7500 individual procedures \2\
---------------------------------------------------------------------------
\2\ In the HCFA payment methodology, individual services and
procedures are distinguished by use of the American Medical
Association's Current Procedure Terminology (CPT), which is comprised
of a set of five-digit numeric codes associated with each discrete
service or procedure.
---------------------------------------------------------------------------
The only data available to HCFA to evaluate
physician practice expense costs--the results of the biennial
Socieconomic Monitoring Survey (SMS) conducted by the American
Medical Association (AMA)--are, for a variety of reasons we
discuss in our report, seriously deficient as a source of data
for the sort of analysis a resource-based practice expense cost
imputation requires.
While the methodology HCFA has elected to employ
to make these cost imputations and compute a fee schedule
represents a good-faith effort to implement the policy, the
methodology raises a variety of policy concerns--for example,
proper payment when clinical personnel employed by physicians
perform work in the institutional setting--that HCFA is unable
to address with its methodology.
While it might be possible, in theory, to
visualize methodological refinements to address some of these
issues, it would not be possible for HCFA to make them, since
the data required to support them do not exist, and would be
difficult, expensive and time-consuming to generate.
The combined effects of these data and methodology
problems represent a serious policy concern, since the practice
expense relative value weights computed by HCFA for full
implementation produce very large swings in payment. The
magnitude of these payment swings is particularly large between
services rendered in a facility setting (e.g., a hospital), and
services rendered outside the facility setting. When this
system is fully implemented the practice expense weights HCFA
has computed will sharply reduce payments to physicians for
treating patients in institutions, and increase payments for
procedures performed in the office setting.
The magnitude of these swings, while a logical
consequences of the data HCFA is employing and the methodology
choices HCFA has made, are very difficult to explain in policy
terms. Even if some variation in payment by site of service was
intended by policymakers, the size of the payment differentials
create the potential for troubling incentive effects.
In our judgment, the problems with the resource-
based practice expense implementation cannot be ``fixed''
through the use of alternative sources of data (which don't
exist) or the use of better methodologies (which would require
non-existent data). Reversion to the prior policy, however,
would reverse the stated intent of Congress to reallocate
payments among professional specialties in order to enhance
reimbursements for evaluation and management services policy--
to freeze the transition at calendar year 2000 levels except
for a defined set of common routine codes--represents a
reasonable balancing of the stated objectives.
[An additional attachment is being retained in the
Committee files.]
Statment of Wayne T. Smith, Jim Fleetwood, and Marty Rash, Rural
Hospital Coalition
Good morning Chairman Thomas; Ranking Member Stark and
other distinguished members of the House Ways and Means
Subcommittee on Health. We submit this testimony on behalf of
the patients, providers and communities in which we own or
operate a rural hospital. Collectively, Community Health
Systems, Inc., LifePoint Hospitals, Inc. and Province Hospital
Company, Inc. represent roughly 10 percent of the rural
hospitals in the United States. In terms of number of
facilities, Community Health Systems is the largest non-urban
provider of general hospital services in the United States and
is the second largest non-urban provider in terms of revenues.
We appreciate the opportunity to discuss the Balanced
Budget Act of 1997 (BBA) and its current impact on rural
hospital providers, patients, and the Medicare program. As
Congress considers reforms to grant necessary relief to rural
providers, we urge the Congress to embrace broad reforms that
give relief to the majority of the 2,100 rural hospitals. These
reforms should include:
Equalizing Medicare disproportionate share
(``DSH'') payments between urban and rural hospitals;
Providing a wage index floor;
Eliminating market basket reduction for rural
hospitals in FY 2001 and FY 2002; and
Restructuring qualifying criteria for Medicare
dependent hospitals based on their past three cost report years
and the payment formula blend applicable to Sole Community
Hospitals and make the MDH program permanent.
Rural Health Care Market
Rural hospitals remain the key to providing rural
communities with both economic development and access to
quality and affordable health care. The loss of a rural
hospital to a community results in more than the loss of access
to health care. The economic impact of a closing of rural
hospital in a rural community cripples a community's ability to
attract new doctors, jobs and industry. A recent study
indicated that health care provides 10 percent to 15 percent of
the jobs in many rural counties.\1\ When the secondary benefits
of those jobs are included, health care accounts for 15 to 20
percent of the all jobs in rural communities.
---------------------------------------------------------------------------
\1\ Statement by Dr. Mary Wakefield before the Senate Agriculture
Appropriations Committee hearing on Rural Hospitals and Rural Economic
Development
---------------------------------------------------------------------------
Rural hospitals have been able to survive only because of a
patchwork of ``special fixes'' enacted by Congress in the last
decade. The Balanced Budget Refinement Act (BBRA) continued
this pattern and provided relief for a small number of special
rural hospitals--Sole Community Hospitals (``SCH''), Critical
Access Hospitals (``CAH'') and Medicare Dependent Hospitals
(``MDH'')-which represent less than 50 percent of the rural
hospitals. As a result, most rural hospitals remain in a market
that is experiencing higher than expected payment reductions, a
reduced number of providers and excessive regulations that are
reducing access to care for Medicare beneficiaries in rural
areas. The impact of these reductions and regulatory burden is
evidenced by:
The Congressional Budget Office (CBO) estimate
that Medicare spending fell by $8 billion dollars between
November 1999 and January 2000.
The Medicare Payment Advisory Commission
assessment that ``rural hospitals have lower inpatient marginsa
and rural hospitals were disproportionately harmed by the
BBA.''
The Health Care Financing Administration (HCFA)
notation in the most recent ``Inpatient Hospital Prospective
Payment System'' regulation that ``approximately one third of
rural hospitals continue to experience negative Medicare
margins.'' The rule further states that HCFA ``now believes
that rural hospitals merit special dispensation...
Special Needs of Rural Hospitals
Rural hospitals tend to be smaller, have difficulty
attracting and keeping health care professionals and are more
dependent on Medicare patients. In order to remain competitive,
hospitals and the communities they serve must continue to be
able to recruit additional primary physicians and expand the
breadth of services offered in their hospital. To remain a
vital part of the United State's health care delivery system,
rural hospitals need fundamental payment reform that extends
relief to all rural hospitals by improving wages, DSH payments
and the hospital market basket update.
Medicare Disproportionate Share Payments
Since 1986, the Medicare program has made special add-on
payments to PPS hospitals that treat low income patients.
Concern for specific groups of hospitals resulted in Congress
creating 8 different DSH formulas. (See Table 1). Each includes
a threshold for the low-income share needed to qualify.
Medicare's proxy for low income patients is based on two
factors:
The percentage of Medicaid patient days
(``Medicaid Utilization''); plus
The percentage of Medicare SSI patient days
Charity, indigent care and bad debts are not considered in
the DSH calculation. The current program applies a higher
qualifying threshold for rural hospitals (30 percent for
hospitals with greater than 100 beds and 45 percent for
hospitals with less than 101 beds, as compared to 15 percent
for urban hospitals with greater than 99 beds and 40 percent
for urban hospitals with less than 100 beds) and
disproportionately weights Medicaid utilization, despite the
fact that Medicaid utilization is a poor measure of overall
service to the poor.
Consequently, more than 95 percent of all DSH payments go
to urban hospitals and is highly concentrated in about 250
hospitals.\2\
---------------------------------------------------------------------------
\2\ According to the ProPAC 1997, the current formula weighs
Medicaid patient days equally with patient days for Medicare
beneficiaries who receive Supplemental Security Income (SSI) cash
payments, despite the fact the former group accounts for four times as
much hospital cost. Consequently, urban hospitals with at least 100
beds benefit from a steeply graduated payment, while rural and small
hospitals receive a lower fixed adjustment.
---------------------------------------------------------------------------
Further, the BBA 1997 requires that HCFA recommend a new
payment formula for DSH adjustments that treat all hospitals
equally. Recent MedPAC reports on DSH funds found little
evidence of any systematic relationship between the share of
poor patients a hospital treats and a per-case cost. Low income
seniors and the hospitals that serve them in rural areas
deserve a more equitable system.
We urge Congress to equalize DSH payments between urban and
rural hospitals. Specifically, Congress should immediately
equalize qualifying low income threshold between urban and
rural hospitals and phase-in the sliding scale distribution
formula used to calculate the DSH payment for urban hospitals
over 99 beds. It is also our suggestion that urban hospitals be
held harmless and that this proposal be implemented with
surplus dollars. Notably, HFCA in recent testimony before the
Senate Agriculture Appropriations Subcommittee noted that they
would consider ``improving equity for rural hospitals in the
Medicare DSH formula.'' In a recent budget analysis prepared by
PriceWaterhouseCoopers, the transition to a uniform DSH payment
for rural hospitals under 100 beds is estimated to cost $709
million over five years (2001-2005). Further, a transition into
a uniform DSH payment and applying an urban distribution
formula in 2001 is estimated to cost $2.95 billion over five
years (2001-2005).
Market Basket (MB) For Rural Hospitals
Rural hospitals have been doubly hurt by three consecutive
years of below MB updates. Although hospitals have become more
efficient, the industry may be running out of cost cutting
initiatives. The problem is more pronounced for smaller
hospitals which have less elasticity of cost to volume.
We urge Congress to eliminate the market basket reduction
for rural hospitals in FY 2001 and FY 2002. A budget estimate
prepared by PriceWaterhouseCoopers estimated that a market
basket update for rural hospitals for 2001 and 2002 would cost
$748 million for rural hospitals under 100 beds and $8.73
billion for all hospitals over five years (2001-2005).
Wage Index Floor
The current wage index reflects area differences in wage
levels in the geographic area of the hospital as compared to
the national average wage level. Most rural areas have a very
low wage index because the index is based on a statewide
average hourly wages for rural areas. The wage index formula,
while recognizing hourly wage differences, does not take into
account the greater number of hours per case that is required
in a lower volume setting due to baseline staffing requirements
and lower volume than urban hospitals. Thus, small rural
hospitals may have a lower average hourly wage but will
require, all things being equal, a greater number of hours
spread over lower volumes to run their operations.
We urge Congress to provide a national wage index floor of
.8500 to .9000 that would provide a bottom end payment boost to
the most disadvantaged rural hospitals. In a recent budget
analysis prepared by PriceWaterhouseCoopers, a floor wage index
of .90 for rural hospitals under 100 beds is estimated to cost
$382 million over the next five years (2001-2005).
Update Criteria For Medicare Dependent Hospitals (``MDH'')
A rural MDH is a hospital located in a rural area with 100
beds or less with at least 60 percent of all discharges or days
attributable to Medicare. The criteria for the MDH program is
based solely on a hospital's 1987 cost report. Facts have
changed since then. Some current MDH's may no longer qualify
and other hospitals that would otherwise qualify cannot because
they did not qualify in 1987.
We urge Congress to make the MDH program permanent and to
revise the MDH criteria to (1) permit any three most audited
years to be used to determine eligibility and, (2) that would
include the current 1996 blend-in afforded to Sole Community
Hospitals. In a recent budget analysis prepared by
PriceWaterhouseCoopers, the proposed definition change in the
MDH criteria is estimated to cost $144 million over five years
(2001-2005).
Conclusion
The problems facing rural health care providers cannot
likely be solved this year. It is critical, however, for
Congress to enact legislation that will extend real relief to
all rural hospitals by improving wages, equalizing DSH
payments, revising the MDH program and providing for a fair
hospital market basket update.
Statement of Shore Health System, Somers Point, NJ
BACKGROUND:
The Shore Health System is a free-standing, community based
not-for-profit health delivery system serving the residents and
visitors of Atlantic and Cape May Counties in New Jersey. We
feel that it is instructive to demonstrate the impact of the
Balanced Budget Act of 1997 (BBA), compounded by other negative
revenue developments, on our system.
BBA:
BBA had, and continues to have, a serious, deleterious
effect on the System's ability to deliver quality health care
to the community. Being comprised of the essentials of a well
rounded continuum of care with an acute care hospital, a
nursing home, and a home health agency, the System is subject
to the `triple-witching' effect of BBA. Each of these key
components of the System was adversely impacted by BBA cuts.
Over the initial five (5) year time frame of BBA, the hospital
faces revenue reductions of $15 million in Medicare
reimbursement. The nursing home Medicare reductions are
$110,000 annually, or $550,000 over 5 years. Home health agency
reductions are, proportionately, the most onerous: $8.3
million, or nearly 30% of expected revenues. Consequently, the
System is challenged with aggregate revenue reductions of $23.9
million over 5 years. This is approximately 5% of operating
revenues over the same period. Compounding these BBA revenue
reductions are severe cutbacks in New Jersey Medicaid,
particularly hard hitting for the nursing home and home health
agency, as well as dramatic increases in care rendered but not
paid by managed care insurers and continual growth in
uncompensated, but mandated, charity care and bad debts.
BBRA:
The Balanced Budget Relief Act of 1999 (BBRA) offered
welcome but scant relief to the System. Relief to the hospital
amounts to approximately $700,000 over the five year period, or
only 5% of the total $15 million in BBA reductions. Home health
agency relief was granted for only one of the five years
covered by BBA. This amounts to $56,000 on total cuts of $8
million. Nursing home relief amounts to restoration of 20% in
BBA cuts in only 14 of 44 patient classifications. The
financial impact of this restoration is $10,000 per year based
on the facility's case mix. To summarize, BBRA provides
approximately $800,000 in relief on $23.9 million of BBA
revenue cuts. It does not address New Jersey Medicaid
reductions, managed care denials, or uncompensated care.
EFFECT ON OPERATIONS:
The System, as a not-for-profit, community based provider,
has historically reinvested its surpluses into delivery of
quality health care services and medical equipment.
Consequently, operating margins have traditionally been thin,
running in the 0.5% to 3.0% range. Conventional financial
wisdom holds that operating margins in the 5% to 7.5% range are
essential to assure the continued viability of a health care
provider. The Shore Health System has traditionally bridged
this gap in margin with the contributions and volunteerism
provided by the community.
The effect of BBA on operating income of the system can be
clearly demonstrated by the following:
Gain (Loss) From Operations*
Pre-BBA: 1996 $3.6 Million
1997 $0.9 Million
BBA Years: 1998 ($3.9) Million
1999 ($4.1) Million
2000 Budget ($2.9) Million
*Combined, audited results of hospital, home health agency
and nursing home, excluding extraordinary items.
Bleak as these figures are, they tell only part of the
story. The most egregious revenue reductions of BBA fall in the
fourth and fifth years (2001 and 2002 for the Shore System).
Fully 55%, or approximately $13 million, of the reductions are
yet to be realized by the System. BBRA relief measures will be
barely perceptible in the face of these substantial cuts.
The operating losses also tell a story of the System's
rising to the challenge of BBA. A five (5) year turn-around
plan has been implemented and is on target. Losses are being
mitigated. This comes at a cost. The System, traditionally a
lower compensation employer, has had to forego wage increases
and cut benefits for several years. The first major layoff in a
quarter century was implemented in 1998, followed up by a
severe austerity program and downsizing of the executive team.
Wage rates have slipped below competitive rates. Recruitment
and retention in this full employment economy have become a
daily challenge. Aggravated by a shortage of skilled nurses,
the system has hit the ``quality wall,'' beyond which further
staffing cutbacks result in inadequate patient care. The
consequent stress level of dedicated staff is manifesting
itself in labor unrest. In the face of these staff challenges,
the ever increasing cost of necessary medical technology and
out of control pharmaceutical pricing compete for the shrinking
pool of revenues.
FURTHER RELIEF NEEDED:
BBRA was intended to grant some relief of BBA cuts. It is
not sufficient to sustain a complete recovery of America's
health care system. If no further amelioration of the BBA cuts
is granted, the System faces inevitable closure of both the
nursing home and the home health agency, each of which are
lower cost alternative means of health care delivery. More
relief is needed now.
While most observers can attest to excess capacity, over
utilization and, in some cases, outright fraud in health care
in the past, these first three (3) years under BBA have wrung
most of these ills from the system. We are now at the point of
doing serious harm to our health delivery system. The ironic
tragedy is that, in this era of unprecedented economic
expansion, budget surpluses and full employment, the United
States is in the process of dismantling the highest quality
health system in the world... without a replacement system in
place. Our world leadership position will suffer as a
consequence. Americans, and world citizens, deserve better.
We request that the subcommittee support further meaningful
financial relief of BBA and appropriate substantive funding to
support this effort.
Respectfully submitted,
Richard A. Pitman
President
Statement of Society of Thoracic Surgeons, and American Association for
Thoracic Surgery
The Society of Thoracic Surgeons and the American
Association for Thoracic Surgery are pleased to submit this
statement to the House Committee on Ways and Means Health
Subcommittee for the record of the July 25th hearing on
Medicare Refinements to the Balanced Budget Act. The Society of
Thoracic Surgeons and the American Association for Thoracic
Surgery are the primary medical specialty organizations
representing essentially all board-certified cardiac and
thoracic surgeons in the United States.
As the Ways and Means Committee considers legislation
making refinements to the Balanced Budget Act of 1997, The
Society of Thoracic Surgeons and the American Association for
Thoracic Surgery urge you to take action to mitigate the
harmful impact of the Health Care Financing Administration's
practice expense relative value rule on surgical care for
Medicare patients with heart and lung disease.
Fees for cardiac surgery for Medicare patients have been
reduced by 40 percent since 1987. If the year 2002 fee schedule
is implemented as proposed by HCFA, there will be another
twelve percent (Cumulative reductions: from $3600 to $1700).
This is before calculating the impact of changes in the cost of
living. If these figures are adjusted by the Consumer Price
Index, the reduction from 1987 to 2002 is 75 percent ($3600 to
$850).
The fee reductions from 1998 to 2002 are the consequence of
decisions HCFA made in revising the ``practice expense''
component of the Medicare fee schedule. As you know, Congress
ordered HCFA in 1995 to revise the fee schedule to accurately
reflect expenses incurred, based on the belief that procedures
performed in the office setting were undervalued. This was done
during a time of yearly budget deficits. In order to increase
payments for office-based procedures in a budget-neutral
manner, reimbursement for procedures performed in the hospital
setting, such as life-saving open-heart surgery, were reduced.
In implementing this directive, HCFA's original work was so
poor that Congress had to stop HCFA in its tracks and provide
detailed instructions in the Balanced Budget Act of 1997 for
developing the new system. In BBA '97, Congress specifically
mandated that HCFA:
Base the new practice expense methodology on
generally accepted accounting principles and ``Recognize all
staff, equipment, supplies, and expenses, not just those which
can be tied to specific procedures,'' in determining practice
expense reimbursement.
Refine the interim Practice Expense Relative Value
Unites (PERVUs) annually during this four-year refinement
period.
Consult with physician organizations regarding
their data and methodology.
Provide detailed impact analyses to test whether
the new practice expense values reflect physicians' actual
practices.
For the 1999 fee schedule, HCFA did revise its methodology,
developing new practice expense values using information from
surveys of the American Medical Association. In its 2000 fee
schedule, however, HCFA again revised its approach, arbitrarily
deleting from practice expense the costs of staff on
physicians' payrolls who assist them in the hospital. HCFA has
estimated that this would shift $350 million a year, when fully
implemented in 2002, from reimbursement for procedures done in
hospitals to procedures done in offices. This has the effect of
taking more than $40,000 of costs per physician away from
thoracic surgeons and transferring these values to other
specialties.
This transfer violates the basic premise of the resource
based relative value system and has reduced the practice
expense reimbursement for cardiac surgery (as well as many
other critical hospital procedures) by twenty percent. That
translates into a further ten percent reduction in the total
allowed fee--another five percent reduction in each of the next
two years.
STS and other specialties have provided HCFA with extensive
evidence that surgeons and other specialists commonly bring
their own staff to the hospital to assist in patient care. This
practice is becoming more frequent as hospitals cut back their
staffs and surgeons develop their own teams to make continued
quality improvements.
Separate reimbursement exists for some, but not all, of
these physician staff. Even where reimbursement exists for
services of some staff (physician assistants) the costs of
these staff exceed offsetting income from fees for their work.
In addition to this arbitrary deletion of costs, HCFA has
failed to comply with nearly all of the other mandates of BBA
'97. We are now halfway through the four-year transition
process and it is clear that HCFA will not be able to make any
refinements and accomplish the admittedly overwhelming task of
accurately accounting for physician's practice expenses until
well after the values are fully implemented.
The consequence of continuing with this flawed system which
has sharply reduced reimbursement for thoracic (cardiac)
surgery is already becoming evident in reduced applications,
particularly from graduates of American medical schools, for
the seven years of advanced training required in this
specialty. This year, eleven of the 139 residency training
slots available in thoracic surgery went unfilled. And
retirements of active surgeons are accelerating, even as the
need for cardiac care of an aging population increases and
training slots are unfilled.
We ask that Congress take into account the cumulative
impact of the policies of the last ten years, as implemented by
HCFA on the future availability of the thoracic surgeons and
other highly-advanced specialists. Advances in preventive
medicine not withstanding, these specialists will be needed to
care for our aging population. Sufficient incentives must be
reestablished to encourage the best and brightest of our
medical school graduates to come into these demanding
professions.
We further ask that Congress take action to correct the
damage being done to thoracic surgery and other advanced, high
technology medical services by HCFA's inability to follow
Congress' BBA `97 directives. Specifically, in developing a
Medicare refinement package, we ask that the Ways and Means
Committee:
Make clear to HCFA that Congress intends it to
``recognize all expenses,'' not just those it arbitrarily
selects, in determining practice expense reimbursement.
In light of HCFA's inability to carry out the
directive of Congress, support the Practice Expense Coalition's
``Halt 2000'' initiative. This proposal, supported by our
society and over 40 other provider organizations, would halt
the transition at the current blend of 50% 1998 PE RVUs and 50%
projected 2002 PE RVUs practice expense values and provide new
money that would allow the increases currently scheduled for
primary care to continue.
We appreciate your consideration of our request.
Texas Association of
Behavioral Healthcare
Houston, Texas 7706
August 7, 2000
U.S. House of Representatives
Congressman Bill Thomas
House Ways and Means Committee
Subcommittee on Health
Washington, DC 20515
Re: OFFICIAL COMMENTS REGARDING OUTPATIENT PROSPECTIVE
PAYMENT SYSTEM (OPPS)
Dear Congressman Thomas and Healthcare Subcommittee
Members:
As President of the Texas Association of Behavioral
Healthcare (TABH), I represent the providers, employers, and
employees of various types of psychiatric services throughout
the state of Texas. The purpose of this testimony is to address
the loss of mental health treatment options for patients who
are living with a chronic and persistent mental illness,
resulting in the current crisis in the treatment of mental
illness. Additionally, I have outlined the steps that the
providers of PHP services and Congressional Representatives
have taken over the past two years in an attempt to avoid this
crisis.
A number of meetings were held over the past two years
between Texas Representatives of Congress, the (TABH),
providers of psychiatric Partial Hospital Programs (PHP), and
Health Care Financing Administration (HCFA). The purpose for
the meetings was 1) to bring to the attention of HCFA the
potential crisis regarding the access to mental health care for
patients as a result of unclear and inadequately and
inconsistently interpreted regulations, and 2) the
implementation of the Outpatient Prospective Pay System (OPPS),
(which in the case of the PHP benefit was unjustly determined).
During the meetings both TABH delegates and Texas
Representatives ardently pointed out that the HCFA regulations
that guide the delivery of the PHP benefit had been
traditionally unclear, were not consistent, and were not fairly
implemented by some Fiscal Intermediaries (FI). It was debated
that HCFA revise their regulations, use recent information in
which to base new decisions, revise the way in which PHP
programs are reimbursed, and fairly assess the current use of
the benefit by mentally ill beneficiaries. It was stated by
Texas Representatives that if these suggestions were ignored,
the PHP programs would begin to reject Medicare patients, and
the benefit would be destroyed, leaving the mentally ill
patient few options for their treatment.
In addition, it was discussed that many of the Texas PHPs
have already closed their programs to Medicare patients due to
numerous new and overly burdensome regulations imposed by HCFA,
and the lack of an appropriate per diem rate that was to be
implemented with the Outpatient Prospective Pay System (OPPS)
on August 1, 2000. This fact was supported by the January 2000,
General Accounting Office's (GAO) report ``GAO/HEHS-00-31,
Medicare--Lessons Learned From HCFA's Implementation of Changes
to Benefits.'' The closure of PHP services has left many areas
in Texas without treatment programs for the mentally ill. This
is especially true for the rural areas, of which there are many
in such a large state as Texas.
In an effort to be more precise, I will state the
situations that have occurred over the past two years in
chronological order:
1. In November 1998, the Subcommittee on Oversight and
Investigation--Committee on Commerce--conducted a hearing where
it was reported by HCFA that 91% of all PHP admissions were
medically unnecessary. Although the TABH and other state
organizations were able to show that this figure was based on
one state (Florida) and five centers from that state, HCFA was
never willing to rescind that original figure. It is the
``fact'' that is still repeated throughout Congress, and one
that is believed strongly by Congressional members.
2. In 1999, as a result of the November 1998 hearing, the
HCFA Office of Inspector General (OIG) swept through five
states, including Texas and Florida, closing programs as they
went. After bringing these reports to the attention of Texas
Representatives, the Representatives began to intervene on our
behalf. Since that time, it has been determined that a number
of these programs were illegally closed. This information can
be verified by the Texas Congressional offices whose districts
were affected.
3. In February 1999, a Townhall Meeting was held in
Baytown, Texas sponsored by Texas Members of Congress. Over 300
people from many states were in attendance. Mr. Robert
Striemer, the HCFA representative, attended the meeting.
Representatives from several state organizations gave testimony
on the crisis that was already occurring in accessing
psychiatric treatment for the mentally ill.
4. Throughout 1999, a number of state organizations went to
Washington, D. C. to bring this crisis to the attention of
their Representatives. Congressman and Senators from Arizona,
California, Connecticut, Colorado, Florida, Georgia, Iowa,
Illinois, Kentucky, Louisiana, Main, Maryland, Missouri, North
Carolina, New Mexico, New York, Ohio, Oklahoma, Pennsylvania,
Texas, Virginia, Washington, Wisconsin, and Wyoming were
contacted by their sate organizations. The purpose of the
meetings was to educate the representatives on the significance
of the PHP programs, the statistics that were misrepresented by
the 1998 hearing, and the unjust treatment by HCFA.
5. In October through December of 1999, HCFA conducted a
five state Local Medical Pre-Pay Review of all centers that
provided PHP services. In January and February 2000, additional
providers were forced to either close their centers or cease
providing PHP services to Medicare patients. Again, it has been
shown that many of these centers were penalized using methods
of data collection and examination that did not follow the
rules set forth by HCFA themselves in a September, 1999
Memorandum. Texas Representatives were again contacted. Some
cases are still under review with assistance from Texas
Congressional offices.
6. In May 2000, Congressman Nick Lampson hosted a meeting
in his office with representatives from other Texas
Congressional offices, representatives of the TABH and the HCFA
administrator, Nancy Ann Min-DeParle and members of her staff.
The purpose of the meeting was to inquire how the per diem rate
that was set for the payment of PHP treatment under OPPS was
determined. It was stated by Ms. DeParle that the rate was a
``best guess estimate,'' and that ``no formal data was gathered
or examined from outpatient, non-hospital based programs in
setting the rate.''
7. In July 2000 a meeting was held in the office of
Secretary Donna Shalala, Department of Health and Human
Services (DHHS). In attendance were Secretary Donna Shalala,
Administrator Nancy Ann Min-DeParle, (HCFA) and Congressional
Representatives Nick Lampson, Sheila Jackson-Lee, Ted
Strickland, Ken Bentsen, Joe Barton, and Charles Rodriguez. The
purpose of this meeting was to ask for the delay of the
implementation of OPPS for PHP services (only) until such time
that an adequate per diem rate could be established and other
problems could be worked out between HCFA and providers of PHP
services. Secretary Shalala and Ms. DeParle denied the request.
Nationally, 65% to 80 % of the programs that were
operational in 1998, and served chronically mentally ill
patients, have closed. It is impossible to determine the exact
number of closures, as ``active provider numbers'' are
considered by HCFA as ``active centers providing services,''
however most centers that have closed or are no longer
providing services to Medicare patients have not surrendered
their provider number, giving an entirely false statistic. Most
recently, the implementation of OPPS has made it necessary for
additional programs in Texas, and around the nation to close or
cease admitting Medicare patients, as it has become
economically impracticable to provide the services at the per
diem rate currently in effect.
In addition, promises that were made by Ms. DeParle during
the May meeting with Texas Representatives were breached. We
were assured that the ``transitional corridors and outlier
payments'' would be provided to PHP providers who did not have
a 1996 Cost Report, ``to lessen the blow that OPPS would have
on providers.'' This same statement was made by individual FIs
in the training programs presented to providers on the
implementation of OPPS. HCFA has now changed their position and
are not providing the promised relief to PHP service providers
without a 1996 Cost Report. The response to the new information
has been that multiple facilities have closed or are planning
to close due to the perceived severity of the financial impact
of OPPS. Furthermore, Texas PHP providers have not yet received
final word from our FIs on the financial implications of OPPS.
This is the second week of the implementation of OPPS.
Compounding the reimbursement situation is the continued
lack of clear guidelines for PHP providers on issues related to
service provision. For example, FIs in many regions have yet to
provide a Local Medical Review Policy (LMRP), which addressed
the changes in the ``Final HCFA Rule.'' We were assured by HCFA
that a LMRP would be published prior to the implementation of
OPPS. Again, we are being asked to provide adequate PHP
services without the benefit of rules and guidelines.
1. To expand on these comments, I am providing the
following comments: HCFA failed to follow Federal Parity
Legislation in the implementation of OPPS by allowing medical
providers Transitional Corridor Payments and Outlier Payments
and precluding PHP providers from qualifying for any additional
payments. A default rate has been given which calculates to
$0.00 in Transitional Corridor and Outlier Payments.
2. Rural hospitals have been provided with relief from
OPPS, but rural PHP providers have been excluded.
3. HCFA publicly admitted on several occasions that no data
from outpatient, non-hospital based PHP providers was
considered in determining the daily rate.
4. No impact studies were conducted regarding the impact of
OPPS on access to care for the mentally ill. To date, Texas has
experienced closures of PHP services in excess of 70% due to
unjust treatment and illegal closures by HCFA, and the
implementation of OPPS. These closures leave entire regions of
the state with no access to psychiatric treatment programs for
Medicare beneficiaries.
5. The 1998 HCFA--OIG Report that Congress has used for the
basis of many decisions regarding the future of the PHP and
psychiatric services are inaccurate and have been
misrepresented, as evidenced by statements in the GAO Report.
In addition, other Committees who have held hearings regarding
the 91% ``error rate'' report testimony to the contrary. It has
been stated in a number of hearings that the method of data
collection used by HCFA was flawed from the inception. Auditors
were not trained or prepared, many had no experience in data
collection, agencies that were contracted to collect the data
were not trained, and the examination and documentation of the
data was not standardized. Again, the result was a ``best
guess'' resulting in an industry that has been unjustly
punished and patients who now go without treatment. I would be
glad to share with the Subcommittee my personal experience with
the 1998 HCFA survey process!
I want the subcommittee to know that the TABH is not
denying the occurrence of fraud and abuse of the PHP benefit in
some areas of the country. Several Texas providers were closed
as a result of fraudulent activities. Others went on to other
ventures that were not under such close scrutiny. Also, we are
in favor of the OPPS if implemented fairly with a per diem rate
that is representative of the cost of providing the PHP
services nation wide. It should be noted that with the closure
of hospital based psychiatric services nationally, PHP service
providers are mandated (by HCFA rule) to provide intense
programming to extremely ill patients. The cost of providing
services through the outpatient PHP level of care has escalated
800% since 1996 due to new HCFA rules and the acuity level of
the patient served.
The TABH is respectfully requesting that the Members of
this Subcommittee consider this testimony and take steps toward
correcting the devastating and discriminatory effects that the
implementation of OPPS has had on PHP services and the mentally
ill patient's access to appropriate care.
The beneficiaries and their families, already burdened
with chronic mental illness, are not in a position to advocate
for themselves. The lack of access to mental health treatment
is a real crisis that is now being felt throughout the country.
The psychiatric community feels that we have been unjustly
targeted by HCFA. We feel that it has been their intention to
decertify all centers providing PHP services. We may be wrong
in our assumption, but it has been a constant struggle for over
two years to provide needed services for these chronically ill
patients. At this point it is the patient who is suffering. The
patient has little access anymore to the treatment programs
that allow them to remain in the community environment and
benefit from community based living. Community living is the
reason that state mental hospitals and mental institutions were
closed, and the mentally ill citizens returned to neighborhoods
to live. This treatment crisis is making it impossible for them
to maintain a sane lifestyle and remain living in their
neighborhoods. Please consider the patient and their needs in
this situaton.
Respectfully,
JoAnne Mandel, LMSW, RN, CS
Visiting Nurse Association
Cincinnati, Ohio 45202-1468
July 25, 2000
A.L. Singleton
Chief of Staff
Committee on Ways and Means
U.S. house of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Mr. Singleton:
The Balanced Budget Act of 1997 had a devastating effect on
the providers of home health services beginning in 1998. It is
our understanding, based on a series of publications including
commentary by NAHC (National Association for Home Care), that
between 20-30% of home health agencies have gone out of
business since the introduction of the BBA. This has been
caused by:
a. reduced levels of reimbursement
b. a reduction in referrals to home health agencies caused
by the actions taken by HCFA to reduce the utilization of home
care and the concerns of fraud and abuse by physicians
There are a number of continuing outstanding issues which
we believe must be addressed by Congress if we are to preserve
home care as an alternative to institutional care, i.e. nursing
homes and hospitals. At the moment it is purely speculative as
to the real impact of the Prospective Payment System (PPS),
which will take effect October 1, 2000. Grave concern has been
expressed by many that as a result of the changes for reporting
the clinical assessment as well as the provision of new
requirements through an information set required by HCFA, plus
the level of reimbursement, that as much as an additional 10%
of home health agencies may go under.
In light of the above, we would recommend that your
committee consider the following:
1. Reductions effective October 1, 2001
Under the current legislation, we anticipate a further
reduction in reimbursement of 15% effective October 1, 2001.
Were this to be implemented, then it is likely that such action
would represent the final nail in the coffin for most of the
home health industry. We would strongly urge that this
provision be eliminated and that an additional 15% be added
back in the year 2001. As compared to hospitals where 60% of
their expenses are spent in human resources, the same line item
is 85% in home care organizations.
It should be noted that a comprehensive cost effective
study regarding home care was issued in November of 1999
provided to the legislative body in British Columbia. The
conclusion was that home care is in fact cost effective when
compared to other forms of institutional care.
2. Benefits
The benefit package in home care represents an enormous
discrepancy as compared to other components of health care
provided in hospitals and nursing homes. Payment by employees
for health care family benefits frequently requires as much as
60% of the premium costs by home care employees versus anywhere
from 15-35% among nursing homes and hospitals for comparable
packages. This puts a significant burden and a competitive
disadvantage to retain and recruit at all levels within home
care. It is not unusual that among the lowest category of
employees, i.e. home health aides, that pension benefits are
not provided. In part this state of affairs is a direct
reflection of the inadequacies of reimbursement for services
rendered for both Medicare as well as Medicaid.
3. Nursing Homes
The press has indicated that a new report is on its way to
HCFA concerning inadequacy of staffing in nursing homes. One of
the responses in the nursing home industry predictably is that
significant additional dollars will have to be paid by payor
sources if new employees are to be hired. This not only affects
the issue of quality of care, but will further impact the issue
of levels of payment if the nursing homes are to successfully
compete in the marketplace. From a compensation point of view,
inclusive of fringe benefits, home care agencies often are the
lowest paying organizations within health care. If in fact the
additional dollars are paid to nursing homes, which sounds
reasonable based upon the issues of adequate staffing, then
without similar payments to home health agencies our industry
will be unable to either recruit or retain its professional and
non-professional staff.
4. Cash Flow
Our organization has been a recipient of PIP (Periodic
Interim Payment) which is now being eliminated under PPS. This
will now provide us with a cash flow shortfall of approximately
$225,000 for the federal fiscal year 2001. Our total budget is
slightly in excess of $9 million with a marginal balance sheet
and with no reserves. Our plight, we believe, is not unique and
we would ask that either PIP be reinstated or some other
mechanism be developed to ensure appropriate cash flow to meet
the needs of our expense budget to pay our employees as well as
our vendor obligations on a timely basis.
Many thanks for the opportunity to comment.
Cordially,
Warren C. Falberg
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