[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
RURAL HEALTH CARE IN MEDICARE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JUNE 12, 2001
__________
Serial No. 107-33
__________
Printed for the use of the Committee on Ways and Means
----------
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
NANCY L. JOHNSON, Connecticut, Chairwoman
JIM McCRERY, Louisiana FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas JOHN LEWIS, Georgia
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota KAREN L. THURMAN, Florida
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
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C O N T E N T S
__________
Page
Advisory of June 5, 2001, announcing the hearing................. 2
WITNESSES
Medicare Payment Advisory Commission, Glenn M. Hackbarth,
Chairman....................................................... 9
______
Dalton, Kathleen, University of North Carolina at Chapel Hill.... 35
Mueller, Curt D., Project HOPE................................... 41
Mueller, Keith J., University of Nebraska Medical Center, Rural
Policy Research Institute...................................... 47
______
SUBMISSIONS FOR THE RECORD
American Association of Homes and Services for the Aging,
statement...................................................... 56
Federation of American Hospitals, statement...................... 60
Nussle, Hon. Jim, a Representative in Congress from the State of
Iowa, statement................................................ 61
Volcano Press, Ruth Gottstein, letter and attachments............ 62
RURAL HEALTH CARE IN MEDICARE
----------
TUESDAY, JUNE 12, 2001
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:10 a.m., in
room 1100 Longworth House Office Building, Hon. Nancy L.
Johnson (Chairwoman 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
June 5, 2001
HL-8
Johnson Announces Hearing on Rural
Health Care in Medicare
Congresswoman Nancy L. Johnson (R-CT), Chairwoman, Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on Rural Health Care: Provider and
Beneficiary Issues. The hearing will take place on Tuesday, June 12,
2001, in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:00 am.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include the chairman of the Medicare Payment Advisory
Commission (MedPAC) and rural health care experts. 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:
Rural health policy has an important place on the agenda of this
Committee. In recent years, Congress has acted to ensure that rural
beneficiaries have access to needed health care services. In the
Balanced Budget Act of 1997, Congress created a new class of
providers--Critical Access Hospitals--to ensure that the capacity for
emergency and ambulatory services are protected in the most isolated
rural areas while retaining a limited capacity for inpatient care. In
the Balanced Budget Refinement Act (BBRA) and the Beneficiary
Improvement and Protection Act (BIPA), Congress moved further to
protect the delivery of emergency care for Critical Access providers by
improving ambulance service payment and covering the costs of retaining
physicians to provide on-call services to emergency rooms.
Further, the BBRA and BIPA increased Medicare payments for rural
hospitals, above and beyond Balanced Budget Act corrections. Sole
community hospitals will be paid based on updated information on the
costs of providing services to patients in their community--the first
significant change in the program since 1989. The eligibility for
Medicare disproportionate share payments was equalized between urban
and rural hospitals, correcting the disparity in who can receive these
payments that has existed since 1990. Finally, the Medicare dependent
hospital program was extended and the eligibility broadened to new
hospitals.
Regardless, the demographic, social, cultural, and economic changes
that affect rural populations are different in many respects than those
for urban populations. Rural America is growing more slowly and its
population is older than the rest of the nation. In Rural Health in the
United States, researchers report that despite these differences the
overall health status indicators for rural residents is similar to that
of urban residents. Chairman Johnson stated: ``Medicare policy must
continue to ensure that the rural elderly and disabled have access to
high quality care. The program should closely monitor their access and
health status. Moreover, we may need to act to modernize the program
when gaps are identified, for example, fewer rural beneficiaries have
Medigap insurance and are more likely to have limited coverage.''
FOCUS OF THE HEARING:
The hearing's first panel will report on the findings from the
congressionally mandated MedPAC report on how Medicare is working for
rural beneficiaries and recommendations for changes in Medicare. The
second panel includes rural experts who will discuss access to services
and the equity of the Medicare benefit structure. The panel will also
discuss whether the many rural provider programs protect vulnerable
rural communities.
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Chairwoman Johnson. Good morning, everyone.
Today will be our first Subcommittee hearing this session
on rural health care. In earlier hearings, we looked for new
ideas on Medicare reform. We asked hospitals and physicians and
other providers how to reduce the regulatory burden. We
examined the adequacy and usefulness of the current definition
of Medicare solvency. We laid the groundwork for a prescription
drug benefit and examined ideas to modernize the fee-for-
service program's beneficiary cost-sharing.
As I read through today's testimony, it is clear that the
earlier hearings were also about the issues that are critical
to rural seniors. For example, in our hearing on cost sharing,
we reported that the design of Medicare beneficiary cost
sharing in the fee-for-service program reflects outdated 1965
insurance practices. As such, more than 35 years later,
beneficiaries are confronted with irrational and confusing cost
sharing which does notreflect the current delivery of health
care. Today, we will hear that as a result of this rural beneficiaries
spend less but have higher cost sharing.
Similarly, at our prescription drug hearing, we found that
many of the current supplemental prescription drug plans, such
as Medigap, are expensive and generally inadequate. We also
found that those without coverage have the least bargaining
power and are therefore often paying the highest prescription
drug prices. At the hearing today, we will hear that too many
of those individuals with the least protection live in rural
America.
Finally, we learned that health care providers spend a
great deal of their time and energy on complying with Medicare
rules. This Subcommittee will continue to work on easing these
requirements so that these providers can once again focus on
what is important to rural and urban beneficiaries alike, and
that is patient care.
To protect rural beneficiaries, we have acted to solidify
access to services in isolated areas. In the Balanced Budget
Act of 1997, Congress created a new class of providers,
critical access hospitals, to ensure that emergency services
are protected in the most isolated rural areas while retaining
a limited capacity for in-patient care. Recently, we have made
the qualifications for critical access hospital designation
more flexible. And last year this Subcommittee acted in the
Beneficiary Improvement and Protection Act to strengthen access
to ambulance services and cover the costs of retaining
physicians to provide on-call emergency services in the remote
communities served by critical access providers.
There is also a need to make sure that rural seniors have
access to hospital services when needed. In the Balanced Budget
Refinement Act and the Beneficiary Improvement and Protection
Act, we increased Medicare payments for rural hospitals. Sole
community hospitals will be able to be paid on their more
recent information on cost, the first significant change in the
program since 1989.
Most important, by equalizing the eligibility for Medicare
disproportionate share payments between urban and rural
hospitals, we were able to pump more than a billion dollars
over 5 years into rural hospitals, which were legally being
discriminated against under the law. Yet the payment formulas
still-for Disproportionate Share Hospital (DSH) payments still
are not fully equalized, and more needs to be done.
Additionally, rural hospitals are often dependent on
outpatient skilled nursing and home health revenues. We added
significant protections and additions to these services so that
these services will continue to be available for seniors and
rural hospitals are better shielded from any negative impact of
the outpatient prospective payment system (PPS) until we can
determine how they are affected by the PPS.
Skilled nursing units in rural hospitals benefit from the
add-on payments to the resource utilization groups and from the
17-percent increase for the nursing component of the rate. The
15-percent reduction in home health services has also been
delayed. These changes equally aided free-standing home health
agencies and skilled nursing facilities in rural areas.
Finally, Congress made significant progress in eliminating
the payment disparities in Medicare+Choice by enacting two
payment floors, $475 for rural counties and $525 for counties
with populations greater than 250,000.
Our goal is to ensure that Medicare beneficiaries get the
care they need. The dust has far from settled from the positive
changes we have made. In fact, most of these policies are only
beginning to go into effect, starting into effect in April, and
the impact of most are yet to be realized.
While we can count the dollars, it is too early to measure
the differences we have made for rural providers. And while we
have done much, I am still extremely concerned about the future
of small providers in general and small rural providers in
particular. In a joint letter to the Health Care Financing
Administration, Mr. Stark and I have recommended a number of
changes that should reduce the regulatory burden and put in
place the technical assistance that small providers need to
assure smooth cash flow in an extremely complicated billing
system.
Then, of course, there is the senior citizen needing care.
As long as it will take us to evaluate the effects of the
changes that we have made in the last year and the year before
that to law and regulatory law, it is going to be even more
difficult to evaluate its impact on rural beneficiaries, the
senior citizens who live in rural areas. I am concerned that
seniors in these areas will still find cost barriers and
receive less preventive care for flu shots, pap smears,
screening mammographies and so on. Clearly, we must act to
modernize Medicare so that the inequities faced by rural
beneficiaries do not continue.
Today, we begin our examination of how rural beneficiaries
as well as providers are surviving in the current distorted and
complex Medicare Program. I am happy to host the first hearing
in which our new chairman of MedPAC, the Medicare Payment
Advisory Commission, will testify, Mr. Hackbarth; and I thank
you for accepting this important job and being with us today.
We are eager to hear what MedPAC's recommendations are to
strengthen rural health care.
I would also like to at the same time note for the record
my thanks to Gail Wilensky for her long and distinguished
service to MedPAC and in the many ways in which she has served
both the House and Senate over many years. I am sure that we
will not lose access to her experience and balanced analysis of
problems, but I do here now recognize her extraordinary service
to MedPAC.
Thank you, Mr. Hackbarth; and before I recognize you, I
will recognize my colleague, Mr. Stark.
[The opening statement of Chairwoman Johnson follows:]
OPENING STATEMENT OF THE HON. NANCY L. JOHNSON, M.C., CONNECTICUT, AND
CHAIRWOMAN, SUBCOMMITTEE ON HEALTH
Today will be our first Subcommittee hearing this session on rural
health care. In earlier hearings, we looked for new ideas on Medicare
reform, we asked hospitals and physicians and other providers how to
reduce regulatory burden, we examined the adequacy and usefulness of
the current definition of Medicare solvency, we laid the ground work
for a prescription drug benefit and examined ideas to modernize the
fee-for-service program's beneficiary cost-sharing.
As I read through today's testimony, it is clear that the earlier
hearings were also about the issues that are critical to the rural
seniors. For example, in our hearing on cost sharing, we reported that
the design of Medicare beneficiary cost sharing in the fee-for-service
program reflects outdated 1965 insurance practices. As such, more than
35 years later, beneficiaries are confronted with irrational and
confusing cost-sharing which does not reflect the current delivery of
health care. Today, we will hear that as a result of this rural
beneficiaries spend less but have higher cost sharing.
Similarly, at our prescription drug hearing, we found that many of
the current supplemental prescription drug plans, such as Medigap, are
expensive and generally inadequate. We also found that those without
coverage have the least bargaining power and are therefore often paying
the highest prescription drug prices. At the hearing today, we will
hear that too many of the individuals with the least protection are
rural.
Finally, we learned that health care providers spend a great deal
of their time and energy on complying with Medicare rules. Earlier this
Spring, Representative Stark and I sent HCFA a detailed list of
recommendations to make Medicare more workable and to relieve the
regulatory burden on the providers, particularly the small providers,
that serve Medicare beneficiaries. Those recommendations, when
implemented will create a more collaborative relationship between HCFA
and providers and allow health care professionals to devote more time
to patient care.
Over the past several years we have acted to solidify access to
services in isolated areas. In the Balanced Budget Act of 1997,
Congress created a new class of providers, Critical Access Hospitals,
to ensure that emergency services are protected in the most isolated
rural areas while retaining a limited capacity for inpatient care.
Recently, we have made the qualifications for Critical Access Hospital
designation more flexible. And last year this subcommittee acted in the
Beneficiary Improvement and Protection Act to strengthen access to
ambulance services and cover the costs of retaining physicians to
provide on-call emergency services in the remote communities served by
Critical Access providers.
There is also a need to make sure that rural seniors have access to
hospital services when needed. In the Balanced Budget Refinement Act
and the Beneficiary Improvement and Protection Act, we increased
Medicare payments for rural hospitals. Sole Community hospitals will be
able to be paid on their more recent information on costs--the first
significant change in the program since 1989. Most important, by
equalizing the eligibility for Medicare disproportionate share payments
between urban and rural hospitals, we were able to pump more than $1
billion over five years into rural hospitals, which were legally being
discriminated against under the law. Yet the payment formulas for DSH
payments still are not fully equalized and more needs to be done.
Additionally, rural hospitals are often dependent on outpatient,
skilled nursing and home health revenues. We added significant
protections and additions for these services. So that these services
will continue to be available for the seniors, rural hospitals are
shielded from any negative impact of the outpatient prospective payment
system, until we can determine how they are affected by the PPS.
Skilled nursing units in rural hospitals benefit from the add-on
payments to the resource utilization groups and from the 17 percent
increase for the nursing component of the rate. The 15 percent
reduction for home health services was also delayed. These changes
equally aided free-standing home health agencies and skilled nursing
facilities in rural areas.
Finally, Congress made significant progress in eliminating the
payment disparities in Medicare+Choice by enacting two payment floors:
$475 for rural counties and $525 for counties with populations greater
than 250,000.
Our goal is to assure that all Medicare beneficiaries get the care
they need. The dust has far from settled from the positive changes that
we made--in fact some of these policies only began in April and others
are to come. While we can count the dollars, it is too early to measure
the difference we made for rural providers.
And it is even more difficult to know if we made a difference for
rural beneficiaries.
I am concerned that the rural beneficiaries sometimes find cost a
barrier and receive less preventive care such as pap smears and
screening mammography. Clearly, we must act to modernize Medicare so
that the inequities faced by rural beneficiaries do not continue.
Today, we begin our examination of how rural beneficiaries as well as
providers are surviving in the current disjointed and complex Medicare
program.
I am happy to host the first hearing in which our new chairman of
the Medicare Payment Advisory Commission will testify. Mr. Hackbarth
thank you for accepting this important job and for being here today. We
are eager to hear from you MedPAC's recommendations to strengthen rural
health care. I would also like to thank Gail Wilensky for her
distinguished years of service and wish her best in her future
endeavors.
Mr. Stark. Thank you, Madam Chair; and thank you for
today's hearing.
Addressing the concerns of rural communities is an
important part of the Medicare system, and I think MedPAC's
recent very good analysis of rural issues makes a contribution
to understanding the Medicare payment system. Unfortunately,
most of the legislation that we have passed for rural health
care has been highly political and rarely evidenced-based. I
look forward to hearing the findings and recommendations in the
new MedPAC report.
A brief review of the report confirms what I have always
thought to be the case, and MedPAC has reported this in the
past, that there is no systemic access problem in rural areas.
In fact, the report released today shows that there is no real
difference in access to Medicare services between urban and
rural populations.
We do, however, continue to hear anecdotal evidence of
rural area providers holding on by the skin of their teeth; and
to the extent there are access problems, in particular rural
areas, we will need to refine the payment system to target
these areas. But, it is very expensive to do across-the-board
increases that boost all rural providers or all providers in
general, if we are just trying to deal with a very small
percentage of the smallest providers.
The results of this MedPAC report also reinforce the
reality that some areas are unlikely to ever be able to sustain
managed care. I hope that Mr. Hackbarth will provide this
information to the Health Care Finance Administration (HCFA) so
that HCFA can take a careful look at this report when they
develop their plans to increase the Medicare+Choice enrollment
to 30 percent. I have trouble understanding why we would want
to pour more money into managed care in rural areas, when there
is little evidence that Medicare+Choice can even be sustained
there.
According to the report, in more than 300 rural counties,
the 2001 floor payment rate exceeds the fee-for-service
spending for the average beneficiary by 130 bucks a month or
about 40 percent. There are simply not enough beneficiaries to
spread risk and not enough providers to buildup a sufficient
network for these plans to realize profits in isolated rural
areas.
The plight of rural providers is not solely a function of
Medicare and Medicaid payments. There are market forces that
disproportionately affect rural areas, and rural areas must
work harder to recruit and retain providers. Medicare payments
are only a small piece of the puzzle in creating an efficient
health infrastructure, and I hope the speakers on the second
panel will help us better understand the problems of rural
communities and how Federal programs can be refined and
coordinated with local programs to help those communities in
need.
I think that we should address, for example, the Medicare
payment reforms as part of an overall strategy rather than in
isolated area changes. MedPAC, I think, has advocated that
Medicare payment policies be site neutral so that decisions on
where a service is provided could be based on clinical factors
rather than payment, and I hope the recommendations in this
report further that policy approach.
At some point, there is a major concern. I don't know
whether it is at 10 beds or 20 beds, but it must be a matter of
medical practice to suggest that at some small minimum--it just
isn't practical or efficient to try and maintain acute care
service. It is probably a lot cheaper to have a helicopter
pilot and a heliport to replace that kind of a facility.
And I think, politically, that is a terrible problem for
us. Nobody on their watch wants to see the hospital in their
hometown closed, particularly when it is named after your most
substantial contributor to your campaign. It just is a very
difficult thing. We have known that for years, and I hope that
we can work together to find some way to build a statue to the
contributors, convert the hospital to a useful purpose and
perhaps make our whole system more efficient. I look forward to
the witnesses' testimony to help us on that course. Thank you.
[The opening statement of Mr. Stark follows:]
OPENING STATEMENT OF THE HON. FORTNEY PETE STARK, M.C., CALIFORNIA
Madame Chairwoman, thank you for having this hearing today.
Addressing the concerns of rural communities is always an important
part of Medicare legislation, and MedPAC 's impartial analysis of rural
issues makes a great contribution to our understanding of the Medicare
payment system. It is unfortunate, however, that rural legislation is
often highly political and rarely evidence based. I look forward to
hearing more about the findings and recommendations included in the new
MedPAC report.
My brief review of the report confirms what I have always thought
to be the case--and what MedPAC has reported in the past--that there is
no systemic access problem in rural areas. In fact, the report released
today shows that there is no real difference in access to Medicare
services between urban and rural populations. But, we continue to hear
anecdotal evidence of rural area providers holding on by a thread and
the potential negative impact on beneficiary access. To the extent that
there are access problems in particular rural areas, we will need to
continue refining the payment systems to better target these areas.
But, we need to be careful not to put more money into boosting all
rural providers--or providers across the board-- if there are more
efficient ways to provide better quality care in those particular areas
that are having trouble.
The results of the MedPAC report also reinforce the reality that
some areas are unlikely to ever be able to sustain managed care. I hope
that the new administrator of HCFA, Tom Scully, takes a careful look at
this report when he develops his plan to increase Medicare+Choice
enrollment to 30 percent. I don't understand why we would want to pour
more money into managed care in rural areas when there is little
evidence that the M+C plans can even be maintained there. According to
the report, in more than 300 rural counties the 2001 floor payment rate
exceeds the fee-for-service spending for the average beneficiary by
$130 per month--or about 40 percent! There are simply not enough
beneficiaries to spread risk and not enough providers to build up a
sufficient network for M+C plans to realize profits in isolated rural
areas.
The plight of rural providers is not solely a function of Medicare
and Medicaid payments. There are market forces that disproportionally
affect rural areas, and rural areas must work harder to recruit and
retain providers. Medicare payments are only a piece of the puzzle in
creating an efficient health infrastructure. I hope that the speakers
on the second panel will help us better understand the problems of
rural communities, and how federal programs can be refined and
coordinated with local programs to help the communities in need.
Thank you all for testifying before us today.
Chairwoman Johnson. I also want to welcome Jim Nussle
especially to our Subcommittee hearing. He has long been very
active in rural coalition and, of course, is the chairman of
the budget Committee; and we appreciate his being here.
Chairwoman Johnson. Mr. Hackbarth, would you like to
proceed?
STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN, MEDICARE
PAYMENT ADVISORY COMMISSION
Mr. Hackbarth. Chairwoman Johnson, Mr. Stark, Members of
the Subcommittee, thanks for the opportunity to discuss the
Medicare Payment Advisory Commission recommendations.
Our starting point in evaluating rural health care for
Medicare beneficiaries was to look at the most important
objective, which is to assure access to quality care. We did
that by reviewing a number of different measures, including
beneficiary satisfaction, performance on certain clinical
quality indicators in use of services. Overall, we have found
that the services used in volume and quality are very similar
to those used by urban Medicare beneficiaries. There are some
important exceptions to that that I would be glad to go into
later on, but, overall, the numbers are quite comparable.
Preserving access to quality care for the long run requires
that we pay attention to the delivery system, includingits
financial needs. Here there is some reason for concern. As you well
know, a substantial gap has opened between the financial performance of
rural hospitals under the Medicare Program and the financial
performance of urban hospitals. That is a relatively new development.
It has happened over the last 10 years, but now the gap is quite
substantial. On average, rural hospitals are losing money on their
overall Medicare business, inpatient and outpatient.
As the chairman alluded to, Congress has already taken some
steps to improve the financial performance of rural providers.
For example, in the case of hospitals, a number of special
payment categories have been adopted--rural referral centers,
sole community hospitals, Medicare dependent hospitals and
critical access hospitals.
We do see some indications that these special categories
may be having a desired effect. For example, totally rural
hospitals, that is, hospitals far-removed from urban areas,
have higher Medicare margins on average than any other category
of rural hospitals at this point; and, also, fewer of them have
negative margins.
In addition, the critical access program, which is
relatively new, appears to be restoring access to some
communities that had lost it. In other words, hospitals had
closed and now have reopened under the critical access program.
We do have some concerns about the targeting of these
special payment categories. In some cases, we think that the
money is spread too broadly, benefiting hospitals that don't
need the special assistance. Despite those concerns about
targeting, though, we would continue the special payment
categories until more targeted adjustments in the rates are
developed and implemented and evaluated.
As has been true in the past, the standard that MedPAC uses
in evaluating payment systems is to try to get Medicare
payments to match the cost of efficient providers. We believe
that Medicare can and should do a better job of targeting than
it has in the past in the case of rural hospitals. We believe
there are four factors that can contribute significantly to the
poorer financial performance of rural hospitals. They are small
size, a longer average length of stay, inaccuracies in the wage
index, and unequal access to disproportionate share payments.
In developing the report to Congress, we examined 20
different options for dealing with these four issues. In this
report, we make a number of recommendations that will address
them in the short run. We also reiterate our support for some
measures that cannot be implemented immediately but are crucial
to the well-being of rural providers. For example, fixing the
occupational mix in the wage index and equalizing access to
disproportionate share payments.
Finally, we continue to study some other possible steps
that could address the needs of rural providers, including an
expanded transfer policy.
Our recommendations as we see it are not designed as aid to
rural hospitals in particular. Rather, they are designed to
improve the payment system and better match Medicare payments
to the cost of efficient providers, for urban and rural
hospitals alike.
As for the new prospective payment systems, those for
outpatient services, home health services and skilled nursing
services, there are a great many unanswered questions. As
discussed in an earlier MedPAC report, this SNF, skilled
nursing facility system, has troubling flaws for urban and
rural providers alike.
We believe that the new outpatient and home health systems
can be made to work effectively for rural providers, but it may
take some refinement. There are some meaningful differences
between the situation of rural providers and urban providers in
these areas. Unfortunately, right now we simply don't have the
data to either evaluate the impact or develop new refinements.
Fortunately, Congress included provisions in legislation
that we think will buy us some time to do a proper evaluation.
The outpatient system, as you know, includes a hold-harmless
provision; and the home health system includes a special 10
percent add-on for rural providers.
Moving on now to the Medicare+Choice program, we believe
that there are fundamental differences between urban and rural
markets that make it unlikely that Medicare+Choice will work as
well in rural areas as in urban areas. Moreover, we see some
risk in the current efforts to try to make the Medicare+Choice
program work in rural areas.
One final point on rural health. Rural America is really
very, very diverse. Generalizations are, therefore, risky. In
order to have a reasonable discussion, we talk a lot about
averages in the report, recognizing that there are always
exceptions to those averages. So if we make a statement about
an average or a typical hospital that may not match exactly
what happens in your district, please bear with us.
Finally, before closing, I would like to mention a non-
rural issue. We are required by statute to review HCFA's
estimate of the update to physician payments for 2002. We have
reviewed HCFA's estimate and found it reasonable based on the
information currently available. We do note, however, that the
actual update could prove to be substantially different and
possibly lower than the current estimate of a negative 1/10th
of 1 percent change; and that difference could be significant.
It depends on what happens with the growth in the economy and
expenditures in the past year under the Medicare Program for
physician services.
As you know, those are both factors in determining the
Sustainable Growth Rate (SGR) cap. MedPAC has recommended
eliminating the SGR system in the past out of concern that it
could lead to a gap between the increase in cost that
physicians experience and the payments they receive from
Medicare. If that gap becomes large enough, it could threaten
access to care.
In addition, since the system applies only to physician
payments and not to outpatient department services, for
example, there could become an incentive to switch services
from physician offices to outpatient departments solely for
payment reasons, which we think would be highly undesirable.
So that is my brief summary, and I would be happy to answer
questions.
[The prepared statement of Mr. Hackbarth follows:]
STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN, MEDICARE PAYMENT
ADVISORY COMMISSION
Chairman Johnson, Mr. Stark, Members of the Subcommittee. I am
Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission
(MedPAC). I am pleased to be here this morning to discuss MedPAC's
newly issued report on Medicare in rural America. This report responds
to a set of requirements enacted in the Balanced Budget Refinement Act
of 1999 directing MedPAC to assess Medicare's payment systems and
policies in rural healthcare markets.
Bottom line
Medicare's most important objective is to ensure that beneficiaries
have access to high-quality care. Because some rural communities face
adverse economic conditions that may limit the ability of local
providers to furnisha broad array of needed services, policymakers have
been concerned that rural beneficiaries may not get the care they need.
We were reassured to find, therefore, that Medicare beneficiaries
living in rural areas are not facing widespread serious problems; with
a few exceptions, data indicate that beneficiaries' access to care, use
of care, and satisfaction with care are similar in rural and urban
areas. This does not mean, of course, that rural beneficiaries in every
county always get all of the care they need or the most appropriate and
effective care; looking at averages can mask deficiencies. It does mean
that where problems exist, they may reflect something other than rural
residence alone.
Preserving access to high-quality care over the long run requires
attention to the well-being of the delivery system. Here, there is some
reason for concern: a substantial gap has opened over the past decade
in the financial performance under Medicare between rural hospitals--
the locus of care in many communities--and urban hospitals. The
Congress has already taken steps to shore up the rural delivery system
and we see signs that some of those measures are making a difference.
For example, the most isolated rural hospitals have higher Medicare
margins than any other category of rural hospital and the critical
access hospital (CAH) program even appears to be restoring access to
some communities that had lost it. Other programs, such as the Medicare
Incentive Program, which is intended to encourage physicians to
practice in areas with limited numbers of primary care physicians, have
been less effective.
MedPAC sees opportunities to refine Medicare's prospective payment
system (PPS) for inpatient hospital services in ways that will make it
more fair to rural hospitals--especially small ones--while preserving
incentives for the efficient delivery of services. In combination,
these incremental steps will improve the Medicare margins of many rural
hospitals.
For example, implementing a low-volume adjustment, fully removing
the salaries and hours of professionals paid under Medicare Part B from
the wage index, and raising the cap on disproportionate share (DSH)
payments would, on average, increase rural hospitals' inpatient
payments by 1.8 percent. This increase would be on top of a 1.7 percent
increase from the DSH payment changes enacted last year. In addition,
although we did not quantify the impact, we can be reasonably sure that
if the Health Care Financing Administration reviews the national labor
share used in the wage index as we recommend, the resulting adjustment
would on average modestly increase payments to rural hospitals and
decrease them to urban hospitals.
Unlike some proposals currently being discussed--such as those to
have a single base payment rate or to implement a wage index floor--
MedPAC's proposals are targeted to take into account factors affecting
rural hospitals' costs. Targeting payments allows the Congress to get
dollars where they are needed most.
For the prospective payment systems that are being phased in for
services in hospital outpatient departments (OPDs), home health care,
and skilled nursing facilities (SNFs), there are many unanswered
questions. We believe the OPD PPS and the PPS for home care can be made
to work for rural providers, but the available data are inadequate to
assess their impact properly. Steps taken by the Congress--enacting
hold-harmless provisions for the OPD PPS and temporary payment
increases for rural home care agencies--give policymakers time to make
an assessment. In the case of skilled nursing care, MedPAC has
previously noted that the new prospective payment system has troubling
flaws that affect urban and rural providers alike. Until these more
fundamental difficulties are addressed, we cannot assess whether there
are issues that affect rural SNFs separately.
Because of differences between urban and rural health care markets,
the Medicare+Choice program is unlikely to succeed in bringing
coordinated care plans to rural areas. In our March report, MedPAC
noted that efforts to overcome barriers to managed care, such as
introducing floors under payment rates, may increase Medicare spending
with no guarantee that the higher spending will yield additional
benefits for Medicare beneficiaries. We recommended in that report that
the Secretary examine variation in fee-for-service spending across the
country to address the more fundamental problem.
The diversity of rural America means that there will undoubtedly be
exceptions to every generalization we make. Without some
generalization, however, policymaking becomes almost impossible. MedPAC
will continue to monitor how well the Medicare program works in rural
areas generally, as well as to watch for specific problems.
Overview of rural health care markets
Many rural communities face market conditions that may depress
demand or supply and potentially decrease access to and use of health
care services among Medicare beneficiaries and other residents.
Depending on the community, these factors include:
a small population,
a declining and disproportionately older population,
low household incomes, relatively high unemployment
rates, and high poverty rates,
a high proportion of the population lacking health
insurance or with limited coverage,
physical isolation, with long distances to urban
centers for specialty care, and
weak or restrictive state polices (such as in
Medicaid eligibility and payment policies or certificate of
need laws).
To examine where these factors operate and the extent to which they
interact, MedPAC contracted with researchers at the Cecil G. Sheps
Center for Health Services Research, UNC-Chapel Hill, who mapped
demographic characteristics to hospital markets. Using the hospital
market data, we analyzed the variation in many of these factors across
market areas and geographic regions. We also explored the relationship
between market characteristics and hospitals' financial performance.
Although our analysis has only begun to scratch the surface, two
preliminary conclusions emerge (see Table 1). First, economic
conditions vary widely among rural markets. Second, rural markets in
the West have different sets of risk factors than those in the East.
For example, the main risk factors affecting rural Western hospital
markets are small populations, declining populations, and
disproportionate numbers of residents aged 65 and older. By contrast,
the main risk factors affecting rural Eastern hospital markets are low
household incomes, high unemployment rates, and disproportionate
numbers of racial and ethnic minorities (who are more likely to lack
health insurance).
These risk factors raise three policy questions:
Are these factors affecting access to, use of, or
quality of services?
Can prospective payment work in rural areas?
Can Medicare+Choice work in rural areas?
Access to care, use of services, and quality of care
Rural areas of the country often have fewer providers and longer
distances between beneficiaries and providers than do urban areas,
potentially hindering access to care. Further, rural quality of care
issues have received little attention in Medicare policymaking. Our
research on access to care, use of services, and quality of care is
largely reassuring. The experience of rural Medicare beneficiaries
appears generally similar to that of urban beneficiaries, suggesting
that they are largely able to overcome the risk factors noted
previously.
Access to care
Data from the Medicare Current Beneficiary Survey (MCBS) indicate
that rural beneficiaries are generally satisfied with the availability
of care, including specialty care; their satisfaction rates are
generally similar to those of urban beneficiaries (see Table 2). This
finding holds for rural areas in general as well as for the most remote
rural areas.
The MCBS data do show differences on questions relating to the
affordability of health care. A smaller percentage of rural than urban
beneficiaries reported being satisfied with the costs of medical care,
and in the more remote rural areas a larger fraction reported delaying
care because of cost considerations. Thesedifferences may reflect rural
beneficiaries' lower likelihood of having supplemental coverage for
cost-sharing and services not covered by Medicare. Accordingly, MedPAC
recommends that the Secretary identify strategies to increase rural
beneficiaries' participation in government programs that cover all or
some of Medicare's cost-sharing requirements. These programs include
Medicaid, the qualified Medicare beneficiary program, and the specified
low-income beneficiary program.
Use of services
Similarities in access are reflected in rural and urban
beneficiaries' use of health care services. Although policymakers and
rural health care advocates have often argued that rural residents are
disadvantaged in obtaining needed care compared with urban residents,
we found that urban and rural Medicare beneficiaries use similar
amounts of care, on average, both nationally and within regions (see
Figure 1).\1\ Similar rates of service use do not imply that all
beneficiaries are equally well served. At the same time, we would
expect serious access problems to show up in lower use.
---------------------------------------------------------------------------
\1\ We measured per capita use of 11 type of services: short--and
long-term hospital inpatient care, rehabilitation hospital, psychiatric
hospital, skilled nursing facility, home health care, swing bed,
outpatient hospital, physician, ambulatory surgical center, and rural
health clinic.
---------------------------------------------------------------------------
Although overall use was similar, the mix differed; rural
beneficiaries used fewer physician and post-acute care services and
more hospital inpatient and outpatient services than did their urban
counterparts (see Table 3). Rural beneficiaries were about as likely as
urban ones to have any physician visit, but had fewer total visits.
Quality of care
Assessing differences in quality of care between rural and urban
areas is difficult, but two measures we examined--use of recommended
services for patients with particular conditions and satisfaction with
care as reported by beneficiaries--are reassuring.
Quality of care is often measured by the extent to which patients
receive recommended services--including preventive services and
services for acute and chronic illnesses--and the outcomes of that
care. To compare quality in rural and urban areas, MedPAC contracted
with Direct Research LLC to analyze Medicare claims data. The
researchers examined two measures: 40 indicators of necessary care
(which reflect minimum standards of recommended care) and 6 indicators
of avoidable outcomes (which represent potentially avoidable emergency
or urgent care). The results suggest that the provision of necessary
care and the occurrence of potentially avoidable outcomes is roughly
comparable between rural and urban beneficiaries. After weighting each
of the indicators equally and adjusting for differences in the age and
sex composition of rural and urban populations, researchers found that
the receipt of necessary care varied from 72 to 74 percent of rural
beneficiaries, compared with 73 percent of urban beneficiaries.
These results are mirrored by the subjective assessment of Medicare
beneficiaries. Among respondents to the MCBS, over 90 percent of rural
beneficiaries reported agreeing or strongly agreeing that their
physician checks everything and that they had great confidence in their
physician. These responses are virtually identical to those of urban
beneficiaries.
Nonetheless, Medicare's systems for improving and assuring quality
could be strengthened to deal more effectively with issues in rural
areas, and we recommend that the Secretary include rural populations
and providers when carrying out Medicare's quality improvement
activities. We also recommend that the Secretary address a critical
problem with Medicare's system for safeguarding quality in rural areas
by requiring more frequent surveying of providers to ensure the care
they deliver meets minimal standards for quality and safety.
Medicare's payments for services in the traditional program
In the traditional fee-for-service program, Medicare generally
relies on prospective payment systems. Two of these systems--the PPS
for inpatient hospital care and the physician fee schedule--are mature
(in the sense that they have been in place for over a decade). New
systems are being phased in for outpatient hospital services, home
health care, and SNFs.
To ensure access to care for Medicare beneficiaries without
imposing undue costs on taxpayers, Medicare's payments should
approximate the costs that an efficient provider would incur in
furnishing care. In general, this means accounting directly in the
payment system for factors that are beyond the control of providers and
that have substantial and systematic cost effects. Some factors can be
easily identified and addressed (at least conceptually). For example,
the diagnosis related groups (DRGs) that Medicare uses to pay for
inpatient hospital services distinguishes cases according to their
clinical similarity and resource cost, raising payments for relatively
expensive cases and reducing them for relatively less expensive cases.
Similarly, Medicare's application of a wage index adjustment to a
portion of operating payments--raising payments in high-wage markets
and lowering them in low-wage markets--allows the program to account
for systematic differences among markets in the wages providers must
pay to remain competitive.
How to account for other factors is less clear. Prospective payment
systems are based on averages, and some providers may be significantly
different from average (and unable to do anything about it). For
example, a hospital in a remote area with a small patient volume may
not be able to achieve the same economies of scale and scope that a
large hospital located in an urban area can. Hospitals may also face
different kinds of costs depending on their location. For example, some
people argue that travel costs are not properly taken into account for
home care provided in rural areas where distances are long.
These examples underlie the congressional interest in how well the
current payment systems work in rural areas for inpatient hospital
services and whether the new payment systems for hospital outpatient
services and home care are likely to be appropriate.
Prospective payment for inpatient hospital services
Rural hospitals had lower Medicare inpatient margins than urban
hospitals throughout the 1990s, and the gap has been widening. By 1999,
the disparity had grown to 10 percentage points (see Table 4). The
growing imbalance in financial performance under Medicare has occurred
despite special payment provisions for rural hospitals whose value is
almost as high as that of provisions that primarily affect urban
hospitals. Although some of the difference in performance may be within
hospitals' control, the size of the gap suggests that the payment
system does not recognize factors that have an important effect on the
costs of rural hospitals.
MedPAC identified four aspects of Medicare's inpatient payment
system that may inhibit the appropriate distribution of payments and
that together play a substantial role in rural hospitals' lower
margins. They are:
failure to account directly for small scale of
operation,
failure to account for longer lengths of stay,
limitations in the measurement of input prices, and
unequal disproportionate share (DSH) payments.
The first three issues concern systematic differences in costs; the
fourth issue involves differences among hospitals in the volume of
services they provide to low-income patients. In each case, Medicare's
current payment system--together with a variety of special payment
categories for rural referral centers, sole community hospitals, small
rural Medicare-dependent hospitals and critical access hospitals--
either does not address the underlying differences or appears to
address them in ways that work against rural hospitals. We therefore
recommend changes, discussed below, that would make payments better
targeted and preserve, as much as possible, the incentives for
efficiency embodied in the PPS. We recommend retaining the special
categories until the proposed changes are implemented and evaluated.
Low volume.--Patient volume, particularly in small and isolated
communities, is largely beyond hospitals' control and may cause their
per-unit costs to be higher than average. The current PPS rates do not
account directly for the relationship between cost and volume,
potentially putting smaller providers at a financial disadvantage
relative to other facilities. We found a statistically significant
inverse relationship between discharge volume and Medicare costs per
case (holding other factors recognized by the payment systemconstant).
The volume and cost relationship was most pronounced for facilities
with fewer than 200 discharges per year (see Figure 2).
The current special payment categories do not target low-volume
hospitals well. Although 10 percent of hospitals--most of them rural--
have fewer than 500 discharges, over one-third of low-volume hospitals
are not in any of the categories. MedPAC recommends that the Congress
direct the Secretary to develop a graduated adjustment to base payment
rates for hospitals with few discharges. So as not to encourage more
care in low-volume settings than is necessary, we recommend that in
defining this adjustment, the distance between facilities providing
inpatient care be taken into account.
Longer length of stay.--Substitution of post-acute services for the
latter days of inpatient stays was a key factor in reducing Medicare's
acute care length of stay 33 percent since 1989. Length of stay fell
less for rural providers generally (25 percent) and much less for the
most rural providers (13 percent). As a result, rural hospitals have
longer lengths of stay than urban hospitals given the mix of cases they
receive, in part because they are less able to transfer patients to
post-acute settings. MedPAC will continue to examine this issue and
possible policy responses.
Input prices.--Medicare's prospective payment systems for inpatient
(and other facility) services include input-price adjustments that
raise or lower payment rates to reflect the hourly wages of health care
workers in each local market. Making accurate adjustments for
differences in market wages is important for two reasons. First,
problems could arise for beneficiaries and taxpayers if Medicare's
payment rates differ from efficient providers' costs. Second,
hospitals' reported wage rates vary substantially among labor market
areas.
MedPAC and others have identified four problems with the wage index
Medicare uses to adjust for input prices. First is the so-called
occupational mix problem, where differences among areas in the types of
workers employed is confounded with differences in their wages. Second
is that market areas as defined by Medicare often encompass distinct
health care labor markets. Third, the wage data that underlie the
adjustment are four years old. Finally, the share of the payment to
which the input price adjustment is made--about 71 percent for
inpatient hospital services--may include cost components that are not
locally purchased (and therefore whose price should not vary with local
market wages).
Addressing the occupational mix problem directly will require data
that HCFA has begun to collect only recently. In the meantime, MedPAC
recommends that Secretary accelerate the planned phase-in of excluding
from the hospital wage index the salaries and hours of teaching
physicians, residents, and certified registered nurse anesthetists.
Although the impact would not be large, the policy would improve the
distribution of payments.
We also recommend that the Secretary reevaluate current assumptions
about the proportions of providers' costs that reflect resources
purchased in local and national markets. Some rural health care
advocates have argued that the current labor share overstates the
proportion of costs that rural hospitals devote to labor and other
locally purchased inputs. The inputs included in the labor share were
originally designated in 1983, and many of these are still largely
purchased in local markets. However, other inputs may be purchased
wholly or partly in national markets; applying an input price
adjustment to such inputs leads to underpayment in low-wage areas and
over-payment in high-wage areas.
The flaws associated with the hospital wage index have led some
advocates to propose that a floor be put under the index. This would
raise payments in market areas with low hospital wage rates (and, if
done budget neutrally, lower them in areas with high wage rates), but
it would do so in an arbitrary fashion. Moreover, if the objective is
to help rural hospitals with poor financial performance, a wage index
floor is a poor way to do so because it would raise payments to both
low--and high-margin hospitals. Our analysis shows that there is no
correlation between hospitals' Medicare inpatient margins and the wage
index; hospitals with low margins are just as likely to be in areas
with a high wage index as a low wage index.
Disproportionate share payments.--Medicare's DSH adjustment for
hospital inpatient services is designed to offset the financial
pressure of uncompensated care and inadequate payment from Medicaid and
other indigent care programs. However, despite improvement in the DSH
payment system implemented through the Benefits Improvement and
Protection Act of 2000 (BIPA), the current system still provides
substantially smaller payment add-ons for rural facilities.
The Commission believes that policy changes are needed to
ameliorate two key problems inherent in the existing DSH payment
system. First, the current measure of care provided to low-income
patients excludes uncompensated care. The BBRA mandated that HCFA
collect this information beginning in 2001.
Second, the current system has separate payment rates for 10
specific hospital groups, with the least favorable rates being given to
most rural facilities and urban facilities with fewer than 100 beds.
The BIPA improved the equity of DSH payments by applying to all
hospitals the same minimum low-income share needed to qualify for an
adjustment. However, the legislation capped the adjustment for rural
hospitals at 5.25 percent; no such cap applies to urban hospitals.
MedPAC recommends raising the cap to 10 percent to improve the equity
of payments. However, we do not believe the cap should be eliminated,
in part because that could lead to large increases in DSH payments now
followed by reductions later if a new payment formula were enacted.
Physician fee schedule
Although 20 percent of the U.S. population lives in rural areas,
only about 10 percent of physicians practice in rural communities.
Because of concerns that some areas were underserved, the Medicare
Incentive Payment (MIP) program was enacted in 1989 in an effort to
entice more physicians to Health Professional Shortage Areas (which
include urban areas). The MIP pays a 10 percent bonus for physicians'
services.
The MIP program is limited in two ways. First, the bonus payments
may be insufficient to attract physicians. Second, MIP payments may be
inappropriately targeted. Nurse practitioners and physician
assistants--who provide a significant share of primary care in rural
areas--are not eligible for payments. In addition, payments may be
inappropriately targeted because specialists and certain other health
professionals are not counted when an area is designated as a shortage
area.
Prospective payment for services in hospital outpatient departments
In August 2000, HCFA implemented a new prospective payment system
for hospital outpatient services. Rural hospitals have been concerned
that the new payment system will not adequately cover their costs of
providing care because it is based on median costs for all hospitals.
Essentially, the question is the same as that discussed above for
inpatient services: does a payment system based on averages penalize
low-volume facilities? The OPD PPS may present additional risks for
rural hospitals because of their greater dependence on Medicare--which
accounted for 45 percent of total costs in rural hospitals, compared
with 34 percent in urban hospitals--and on outpatient services.
Our analysis suggests that rural hospitals, particularly small
ones, may have higher unit costs, be more vulnerable to the financial
risks inherent in prospective payment, and be less able to adapt to the
new payment systems. However, our assessment of the applicability of
the new PPS is hampered by a lack of experience and data under the new
system. Fortunately, the current policy has a hold-harmless provision
for rural hospitals with 100 or fewer beds. This provision protects
more than 80 percent of rural hospitals and all of the small rural
hospitals that appear to be most vulnerable, and provides time to
gather data and undertake analyses that can better inform future policy
decisions regarding the treatment of rural hospitals under the
outpatient PPS.
Prospective payment for home health services
In October 2000, HCFA implemented a new prospective payment system
for home health services. Movement to prospective payment has generally
been viewed positively, but some advocates and policymakers have
beenconcerned about access to home health services in rural areas. They
are concerned about the effects of closures of home health agencies in
rural areas and that the PPS may not adequately account for the costs
of providing care in rural areas. MedPAC concludes that the new PPS
should work equally well in rural and urban areas and that the Congress
should not exempt rural home health services from the PPS.
An appropriate payment amount should cover the costs that an
efficient provider would incur in furnishing care. We identified two
factors that could distinguish rural from urban areas: travel costs and
volume of services. Traveling to serve sparse or remote populations may
increase the costs (relative to urban settings) of providing services
to rural patients. Rural providers may also be at a cost disadvantage
if they have a low volume of services and cannot spread fixed costs
over a large number of episodes.
Significant data limitations restrict our ability to analyze the
impact of these factors fully. The first cost reports under the new
payment system will not be available until September 2003, and we are
concerned that the quality of the information they provide may not be
good. Accordingly, we recommend that the Secretary study a sample of
home health providers to evaluate the impact of the new payment system,
evaluate costs that may affect the adequacy of prospective payments,
and find ways to improve all cost reports. As with outpatient services,
legislative protections--in this case a 10 percent increase in payments
for the next 2 years--should help to ensure access while we evaluate
the system.
Will Medicare+Choice work in rural areas?
Policymakers have sought to bring to rural areas the generous
benefit packages and low premiums enjoyed by some beneficiaries in
urban areas who have enrolled in Medicare managed care plans. Two
aspects of the Medicare+Choice program were designed to help accomplish
this. First, payments in lower-paid counties, which includes most rural
areas, were increased by creating a floor rate. Second, plans other
than health maintenance organizations (HMOs) were allowed to
participate in the program.
Even though the floor under payments has been increased
substantially (to $475 monthly), coordinated care Medicare+Choice plans
offering generous benefit packages at little or no cost have not
entered rural areas. We see three reasons for this. First, coordinated
care plans rely on provider networks, which are difficult to establish
in rural areas. This difficulty arises because rural providers who face
little competition have no incentive to accept reduced payments and
because there are fewer so-called intermediate entities, such as
independent practice associations, willing to accept financial risk.
Second, the small populations in many rural areas provide too small an
enrollment base over which to spread fixed costs. Third, because
relatively few rural areas consume large amounts of health care, there
is less scope to achieve efficiency gains.
The floor payments have made entry attractive to private fee-for-
service plans. Under Medicare+Choice, such plans take full risk for
beneficiaries' health care, but need not manage care or establish
networks of providers. If Medicare+Choice payments were substantially
equal to risk-adjusted spending in traditional Medicare (as MedPAC
recommended in March), private fee-for-service plans could provide a
desirable option to beneficiaries without presenting a financial
quandary for the Medicare program. Under current law, however, Medicare
spending will rise above what it would otherwise have been, and the
increased spending will not necessarily yield extra benefits for
beneficiaries. Instead, some of the higher spending may be used for
additional profit, higher administrative costs, or higher payments to
providers.
What should policymakers do? The efficiency gains and provider
discounts that Medicare HMOs in urban areas use to fund additional
benefits are unlikely to be achievable in rural areas. Although other
alternatives to the current system should be explored--such as risk
sharing through partial capitation or split capitation--rural
beneficiaries are unlikely to see more generous benefits without an
explicit or implicit subsidy.
1. We measured per capita use of 11 type of services: short- and
long-term hospital inpatient care, rehabilitation hospital, psychiatric
hospital, skilled nursing facility, home health care, swing bed,
outpatient hospital, physician, ambulatory surgical center, and rural
health clinic.
Table 1.--Percentage Of Rural Hosptial Markets With Selected Characteristics, By Region
----------------------------------------------------------------------------------------------------------------
All markets Markets with small population
Market/hospital characteristic -----------------------------------------------------------------
All East West All East West
----------------------------------------------------------------------------------------------------------------
Small population.............................. 25.0% 6.0% 40.0% 100.0% 100.0% 100.0%
Declining population.......................... 24.3 14.6 32.1 49.6 28.3 52.1
Declining population and disproportionately 10.3 1.7 17.3 32.4 8.3 35.3
aged.........................................
Low household income.......................... 44.7 45.5 44.1 48.7 65.0 46.7
High unemployment............................. 30.2 35.1 26.2 21.1 55.0 17.0
Isolated location............................. 18.5 7.3 27.6 34.3 18.3 36.3
Low volume.................................... 21.7 8.1 33.2 65.6 54.5 67.0
----------------------------------------------------------------------------------------------------------------
Note: East and West regions are divided by the Mississippi river; East includes New England, Middle Atlantic,
South Atlantic, East South Central, and East North Central census divisions, while West includes West South
Central, West North Central, Mountain, and Pacific Divisions. Small population = fewer than 11,900 people;
declining population = average annual population change from 1990 to 1999 of at least &0.1 percent;
disproportionately aged = at least 20 percent of the population in the market ZIP codes is age 65 or older;
low household income = median household income of the market area is <$28,100; high unemployment = percent of
workforce that is not employed is greater than 8.1 percent; isolated location = air-mile distance to nearest
short-term acute care hospital is $ 25 miles; low volume = 500 or fewer acute inpatient discharges in 1997.
Source: Analysis of Claritas Corp. estimates based on 1990 census by Cecil G. Sheps Center for Health Services
Research, University of North Carolina at Chapel Hill.
Table 2.--Beneficiary Satisfaction With and Access to Care, by Location of County, 1999
----------------------------------------------------------------------------------------------------------------
Adjacent to an MSA Not adjacent to an
---------------------- MSA
---------------------
Includes Does not Does not
a town include a Includes include a
Urban in Rural with at town with a town town with
Characteristics an MSA total least at last with at at least
(UIC 1,2) 10,000 10,000 least 10,000
people people 10,000 people
(UIC 3, (UIC 4, people (UIC 8
5) 6) (UIC 7) (UIC 8,
9))
----------------------------------------------------------------------------------------------------------------
Very satisfied/satisfied
Availability of medical care................ 93.6% 93.6% 94.3% 93.0% 94.9% 92.9%
Overall quality of care..................... 96.0 96.0 95.4 96.3 96.4 96.2
Ease of getting to doctor................... 94.9 92.4 95.0 90.7** 94.6 90.3*
Costs of medical care....................... 87.6 82.4* 83.3* 82.8** 82.7 79.6**
Specialist care............................. 96.4 95.6 97.4 95.6 93.9 94.0
Had trouble getting care...................... 4.0 3.3** 2.2** 4.1 2.0** 4.1
Delayed care due to cost...................... 6.6 9.9 8.7 10.5** 11.3** 9.8**
No office visit this year \1\................. 18.3 20.2 16.1 20.5 12.4** 31.0**
----------------------------------------------------------------------------------------------------------------
Note: UIC (urban influence code, as defined by the U.S. Department of Agriculture), MSA (metropolitan
statistical area, as defined by the U.S. Office of Management and budget).
\1\ Office visits only pertain to beneficiaries enrolled in traditional Medicare, and not Medicare+Choice. The
Medicare Current Beneficiary Survey bases office visits on claims data, and providers do not submit claims for
Medicare+Choice enrollees.
* Difference between urban and rural subgroups is statistically significant at the 0.05 level.
** Difference between urban and rural subgroups is statistically significant at the 0.01 level.
Source: MedPAC analysis of 1999 Medicare Current Beneficiary Survey Access to Care file.
Figure 1. Urban and rural beneficiaries use similar amounts of
services, but rates differ among regions
[GRAPHIC] [TIFF OMITTED] T4411A.001
Regional Use Rates
----------------------------------------------------------------------------------------------------------------
Region
----------------------------------------------------------------------------------------------------------------
Location of county (UIC) Nation Northeast South Midwest West
----------------------------------------------------------------------------------------------------------------
Urban, in an MSA (1, 2).................................. 4,828 4,650 5,092 4,827 4,532
Adjacent to an MSA and includes a town with at least 4,796* 4,396* 5,111 4,718 4,527
10,000 people (3, 5)....................................
Not adjacent to an MSA but includes a town with at least 4,922* 4,339 5,395* 4,750 4,503
10,000 people (7).......................................
Adjacent to an MSA but does not include a town with at 5,003* 4,541 5,213* 4,867 4,480
least 10,000 people (4, 6)..............................
Not adjacent to an MSA but includes a town with between 5,073* 4,601 5,469* 4,787 4,688
2,500 and 10,000 people (8).............................
Not adjacent to an MSA and does not include a town with 5,059* 5,504 5,372* 4,815 4,586
at least 2,500 people (9)...............................
All beneficiaries........................................ 4,864 4,627 5,156 4,813 4,537
----------------------------------------------------------------------------------------------------------------
Note: UIC (urban influence code, as defined by the U.S. Department of Agriculture), MSA (metropolitan
statistical area, as defined by the U.S. Office of Management and budget). Use is the sum of the services from
11 service types, evaluated at nationally standardized payment rates and adjusted for individual differences
in health status. These results include beneficiaries in traditional Medicare and exclude beneficiaries in
Medicare+Choice, who make up 21 percent of the Medicare population in urban counties and 4 percent of the
population in the five non-urban categories. Northeast includes New England and Middle Atlantic census
divisions; South includes South Atlantic, East South Central, and West South Central census divisions; Midwest
includes East North Central and West North Central census divisions; West includes Mountain and Pacific census
divisions.
* Indicates statistically different from urban value in same region (5 percent level).
Source: MedPAC analysis of claims from 1999 for a 5 percent random sample of Medicare Beneficiaries.
Table 3.--Per Capita Use of Services by Beneficiaries in Traditional Medicare, by Type of Service and Location
of County, 1999
----------------------------------------------------------------------------------------------------------------
Location of county (UIC)
----------------------------------------------------------------------------------------------------------------
Adjacent to an MSA Not adjacent to an MSA
----------------------------------------------------------------------------------------------------------------
Includes
Includes Does not Includes a town Does not
a town include a a town with include a
Urban, In with at town with with at, between town with
Service type an MSA (1, least at least least 2,500 and at least
2) 10,000 10,000 10,000 10,000 2,500
people(3, people people people people
5) (4, 6) (7) (8) (9)
----------------------------------------------------------------------------------------------------------------
Physician................................... 1,276 1,188* 1,186* 1,195* 1,139** 1,117*
Physician+RHC............................... 1,280 1,214* 1,246* 1,231* 1,212* 1,230*
Hospital outpatient......................... 541 616* 625* 642* 664* 690*
Hospital inpatient.......................... 2,185 2,250* 2,363* 2,319* 2,473* 2,452*
Post acute**................................ 684 602* 653* 628* 623* 593**
SNF+Home health............................. 502 461* 467* 478* 453* 426**
Swing beds.................................. 1 8* 24* 13* 30* 49*
Other....................................... 138 114 116 103 101 94
Total....................................... 4,828 4,796 5,003* 4,922* 5,073* 5,059
----------------------------------------------------------------------------------------------------------------
Note: UIC (urban influence code, as defined by the U.S. Department of Agriculture, MSA (metropolitan statistical
area, as defined by the U.S. Office of Management and budget), RHC (rural health clinic), SNF (skilled nursing
facility). Hospital inpatient combines short-term and critical access hospitals. ``Other'' combines ambulatory
surgical center and psychiatric hospital services. Use is services evaluated at nationally standardized
payment rates and adjusted for individual differences in health status. These results include beneficiaries in
traditional Medicare and exclude beneficiaries in Medicare+Choice, who make up 21 percent of the Medicare
population urban counties and 4 percent of the population in the five non-urban categories.
* Indicates statistically different from urban value (5 percent level).
** Post acute also includes two categories (not shown) for rehabilitation and long-term hospital services.
Source: MedPAC analysis of claims from 1999 for a 5 percent random sample of Medicare Beneficiaries.
Table 4.--Hospital Financial Performance, By Urban and Rural Location,
1999
------------------------------------------------------------------------
Medicare Overall
Hospital location (UIC) inpatient Medicare Total
margin margin margin
------------------------------------------------------------------------
Urban, in an MSA (1, 2)................ 13.5% 6.9% 2.9%
Rural
Adjacent to MSA and includes a town 3.1 -3.2 4.5
with at least 10,000 people (3, 5)..
Adjacent to an MSA but does not 6.0 -2.2 3.9
include a town with at least 10,000
people (4, 6).......................
Not adjacent to an MSA but includes a 4.5 -2.7 5.3
town with at least 2,500 people (7,
8)..................................
Not adjacent to an MSA and does not 8.4 -0.1 -0.4
include a town with at least 2,500
people (9)............................
------------------------------------------------------------------------
Note: UIC (urban influence code, as defined by the U.S. Department of
Agriculture), MSA (metropolitan statistical area, as defined by the
U.S. Office of Management and budget). Data are preliminary; the
inpatient and total (all sources of revenue) margins are based on two-
thirds of hospitals covered by prospective payment, while the overall
Medicare margin is based on one-half of hospitals covered by
prospective payment.
Source: MedPAC analysis of Medicare Cost Report data from HCFA.
[GRAPHIC] [TIFF OMITTED] T4411A.002
Chairwoman Johnson. Thank you very much, Mr. Hackbarth.
I thought your testimony was very useful in the way it went
through kind of the unique aspects of reimbursing rural
hospitals and the way common factors don't play out as clearly
or as accurately for small hospitals that tend to have lower
usage.
You comment that patient volume, particularly in small and
isolated communities, is largely beyond hospitals' control and
may cause their per-unit costs to be higher than average. The
current PPS rates do not account directly for the relationship
between cost and volume, potentially putting smaller providers
at a financial disadvantage relative to other facilities. I
think that is a very significant problem. I don't know how we
deal with it, but it is an equally significant problem at the
other end.
When you visit some of the big medical centers in the urban
areas where they are running at a hundred percent of capacity
and sometimes over a hundred percent and their hospitals are
under this constant pressure of full usage and their staff are
under that strain and their rest rooms and everything, we don't
account well for that either. In fact, I am wondering if you
are giving any thought at MedPAC to the fact that the PPS
system worked very well when we brought the system of the
seventies into the eighties and nineties but may not be working
so well right now. In other words, it works well when there is
fat in the system and there is flexibility. Now that we have
pressed down on length of stay and that can't change much and
costs stay about the same, I am finding that this concept of
average payment is not as valid a concept as it was when we
first adopted it in the eighties.
I agree that it seems to work very directly against rural
hospitals, because you allocate the overhead over fewer
patients. So it works equally badly against the really hundred-
percent capacity hospitals, too.
I would like you to comment on that, but also I would like
you to take just a few minutes and go into a little further
explanation of how the factors vary, that rural hospitals
almost inevitably have a longer length of stay because of the
dearth of other facilities and so on with the input prices. I
thought that was very interesting, and I think you need to be
on the record a little bit more specific about how the very
formula that we rely on doesn't work when you apply it to the
rural institutions.
Mr. Hackbarth. OK.
Chairwoman Johnson. Thank you.
Mr. Hackbarth. Well, let me begin with the low volume
issue. One of our recommendations is that we add a low volume
adjustment to the prospective payment system, and it would
apply to hospitals with fewer than 500 total discharges. We
arrived at that figure by looking at the data and looking at
the relationship between average cost per case and volume and
found that, below the 500 level, there were significant
increases in the cost per case.
We think that volume is an issue that can be outside the
control of a provider. I say ``can be'' because you wouldn't
want to make payment adjustments for multiple low volume
hospitals that are in close geographic proximity to one
another. So, our proposal is to make an adjustment for
hospitals that are further than some reasonable distance from
other providers.
Chairwoman Johnson. I do think the distance consideration
is very important. Otherwise, we will be funding lots of little
hospitals----
Mr. Hackbarth. Exactly.
Chairwoman Johnson. In every little town.
Mr. Hackbarth. So, in our report, we did not choose a
particular mileage figure. We have recommended that the
Secretary look at that. The analysis that we did was based on
the 15-mile distance. There obviously is no right answer to the
exact distance, but that was how we did the analysis.
Chairwoman Johnson. But when you say 10 percent of the
hospitals, fewer than 500 discharges, that 10 percent was
derived from hospitals that are--were less than 15 miles apart?
Mr. Hackbarth. About 11 percent of the hospitals have fewer
than 500 discharges. The number that are more than 15 miles
apart will be somewhat lower than that. I don't know that
number off the top of my head. Because we are talking about
very small hospitals, the overall financial affect of this
adjustment to Medicare as a whole is quite small, but for the
individual hospital, it could be quite important.
Chairwoman Johnson. And how much do we know about those
hospitals in the sense that do they provide sort of a community
clinic capability? Many of the small hospitals in my part of
the country have done that. Where there are emergency rooms,
they provide emergency care. But they also provide just sort
of--like a general practice office.
Mr. Hackbarth. Well, there is a fair amount of variability
in terms of the services they provide. Obviously, a concern is
that a very small hospital like that not try to provide
services that are beyond the scope of what can be done well in
a small institution.
Chairwoman Johnson. How much of the reimbursement problem
that we are seeing in rural America results from the fact that
rural providers experienced only a 25 percent drop in length of
stay, whereas on average in the Medicare system there was a 33
percent drop since 1989? Certainly if you had a very much lower
drop of length of stay, you would have higher costs for the
same PPS.
Mr. Hackbarth. Yes. In 1992, the average Medicare margins
of rural hospitals were just about the same as urban hospitals.
So the gap that exists today has opened up over the last 10
years. A principal factor in the development of that gap is the
fact that rural hospitals have not been able to reduce the
average length of stay by the same amount as urban hospitals,
and their cost per case increases have therefore been larger.
We think that one factor of that is a lack of alternatives for
post acute care and for sophisticated ambulatory care. And,
therefore, since those factors are beyond the control of the
individual rural hospital, we think that those are factors that
ought to be taken into account.
Chairwoman Johnson. Have you done any looking to see
whether or not we could provide step-down beds, allow step-down
beds in those rural facilities so we could reimburse them less,
the patients would cost us less and the institution would be
reimbursed more fairly in their acute bed section?
Mr. Hackbarth. We did not look at step-down beds as a
particular option, at least not since I have been on the
Commission. That is something that we could take a look at.
Chairwoman Johnson. Well, I just--I am going to move on,
because I don't--there are plenty of questions that could be
asked, but we have a lot of members here really interested in
rural health.
I would just say that I know there are a lot of barriers in
looking at step-down beds. On the other hand, the whole world
is looking at continuity of care and those issues much
differently. So, that is one thing that I think we do need to
look at with MedPAC. In some areas they have done it by
integrating home health agencies in nursing homes with
hospitals. But in rural areas we should be looking I think more
seriously at what these relationships are and what they could
provide us with.
Mr. Stark.
Mr. Stark. Thank you, Mr. Hackbarth, and congratulations.
Mr. Hackbarth. Thank you.
Mr. Stark. I hope you find this an exciting, challenging
job.
First, on this question of extra days, my guess would be
that an extra day, if it is a 3-day Diagnosis Related Group
(DRG), would have a lower marginal cost than the first couple
of days. Is that a reasonable assumption?
Mr. Hackbarth. Typically, the services provided on the
later days are somewhat less expensive than the early days.
Mr. Stark. And, second, most of these hospitals have swing
beds?
Mr. Hackbarth. Yes.
Mr. Stark. So, they could move the beneficiaries within the
hospital to a swing bed and get a second cut at the apple,
couldn't they? I mean, they not only get the full DRG, but then
they could hop over and get some money for transferring the
patient into a swing bed. It would be in the hospital's
interest to keep them and move them into swing bed status. It
seems to me there is almost an incentive for the hospitals to
keep them there, because they make a little extra money, but
maybe I misread that.
Mr. Hackbarth. Well, there is an opportunity to move
patients from inpatient into swing beds.
Mr. Stark. And get a second fee, which you wouldn't get if
you just kept them in the extra day of the DRG.
Mr. Hackbarth. That is correct. They have an incentive in
the same sense that any provider has an incentive to use the
facilities.
Mr. Stark. And in a 10-bed hospital, that isn't a very big
move. I mean, that is from one end of the hall to the other?
Mr. Hackbarth. Right.
Mr. Stark. A couple of things in your report. You recommend
that the Secretary identify strategies to increase the
enrollment of rural beneficiaries for Qualified Medicare
Beneficiaries (QMB) and Specified Low-Income Medicare
Beneficiary (SLMB) cost sharing.
Mr. Hackbarth. Right.
Mr. Stark. Would you have any objection or would you think
it is a good idea for us to do that for all low-income
beneficiaries everywhere? Would that be a fair request to ask
about suggesting that?
Mr. Hackbarth. Well, we certainly think that all
beneficiaries ought to have access to what they are entitled to
under the law.
We focused on rural beneficiaries here for a couple
reasons. One, we found that an important issue in rural
beneficiaries is the cost of care. I say that at the outset
that rural beneficiaries were generally as satisfied with their
care as urban beneficiaries. One of the exceptions to that is
around the cost of care.
Mr. Stark. What about----
Mr. Hackbarth. Oh, I am sorry----
Mr. Stark. What about having the providers qualify people,
particularly in rural communities where they may be farther
away from the welfare office to provide information on QMB and
SLMB, than they are from the hospital. Would you see anything
wrong with letting the providers have a qualification program?
Mr. Hackbarth. Mr. Stark, that is really beyond my personal
knowledge and expertise.
Mr. Stark. One other problem that I see coming up here,
just recently the Secretary announced that HCFA would
discontinue collecting encounter data from the Medicare+Choice
plans. And I wonder about your thoughts on that. My thought is
that MedPAC has always supported risk adjustment, and I presume
MedPAC still does. It would seem to me that you need to have
that encounter data to begin to get at any kind of basis for
risk adjustment. Would you feel that it would be in the best
interest of HCFA to continue collecting that encounter data, or
do we have something that we can substitute for it?
Mr. Hackbarth. Well, we believe that risk adjustment is
critically important for the Medicare+Choice program, and the
tool that has been under development for several years depends
on that data. I have not had a chance to talk to Mr. Scully
about what alternatives he sees, so I am not sure what his
thinking is about.
Mr. Stark. Would you have any source for data? I mean,
wouldn't that hurt your studies if you didn't have this
encounter data?
Mr. Hackbarth. It is those data that allow us to evaluate
what is going on. You may have an alternative I am not privy to
at this point.
Mr. Stark. I wanted to commend you. I know of nobody else
in this town, except myself, who is diplomatic and gentle
enough to suggest that the fee-for-service Medicare+Choice
plans are like stealing money from Medicare. That is the kind
of phrase I like. And how are you going to know if they are
stealing money if you don't have the encounter data? So, thank
you, and we will help you get the data.
Mr. Hackbarth. OK. Could I just address that for a second?
Chairwoman Johnson. If you could address that, Mr.
Hackbarth.
Mr. Hackbarth. I have real concerns about the use of floors
in the Medicare+Choice program. The Medicare Payment Advisory
Commission as a whole has concerns about that. And what I said
in the comment that you referred to, Mr. Stark, is that by
creating these floors--I fear we have given a license for
people to steal from the Medicare Program. The problem is not
with the insurers that are moving in, but I think with the
policy--the underlying policy.
For reasons that have to do with the nature of rural health
care, I don't think managed care is going to work very well in
rural America for Medicare. It hasn't on the private side.
There isn't a lot of private managed care in rural America. And
by artificially increasing the payment rates by the underlying
fee-for-service costs, we create a substantial gap that could
be used for higher profit, higher administrative costs, higher
payment for providers, and I think it could be a very expensive
way to try to get added benefits to rural beneficiaries. And
that is my concern about it. Thank you.
Mr. Stark. Thank you.
Chairwoman Johnson. Just on the issue of the data, would
you care to comment on MedPAC's position on aggregate data
versus encounter data?
Mr. Hackbarth. For Medicare+Choice?
Chairwoman Johnson. Well, for risk adjusting.
Mr. Hackbarth. Yes. For risk adjusting, we have not looked
extensively at a proposal for use of aggregate data. Our
analysis has been based on and favored the use of beneficiary-
specific data. I don't want to rule out that Mr. Scully has a
better idea until I learn more about it, but all of our focus
has been on beneficiary-specific adjustment.
Chairwoman Johnson. We will be looking at that, because
there are areas--there is some seasoned experience with
aggregate data. Mr. Camp.
Mr. Camp. Thank you, Madam Chairman. I have a couple of
questions.
I think most of the hospitals in my district are over 10
beds but probably under a hundred and so would fit into a
category of hospital that I think is essential in a rural area,
and I have a question particularly about the financial
performance. You mentioned the gap in your report, rural
hospitals having about a 3.4 percent Medicare in-patient margin
compared with 13.4 percent for urban hospitals; and you
testified today that that gap has opened up over the last 10
years, I believe. And one of the causes being length of stay.
But my question is, do you think that rural hospitals then are
being paid too little and that urban hospital margins are too
high?
Mr. Hackbarth. Well, the focus of this report has been on
the adequacy of payment to rural hospitals, and we see areas
where we don't think the payments are adequate. Specifically,
we haven't adjusted for factors that are beyond the control of
rural hospitals. So, yes, we think that that needs to be
changed and would result, on average, in increased payments.
Mr. Camp. Do you think the fact that rural hospitals are
losing money overall in the Medicare system, and given your
background at HCFA over the last few years, what do you think
the intent of Congress was in creating the prospective payment
system in relation to that problem?
Mr. Hackbarth. Well, certainly the intent was not for any
large category of hospitals to lose money continuously. That is
a sign that we haven't properly matched payments to efficient
costs. So that needs to be addressed.
When the PPS system was developed in the early eighties,
there was not a specific target rate of profitability that was
set as a guide. That has always been a much looser discussion.
There is not a specific number.
Mr. Camp. On the disproportionate share payment issue, you
know, it was created by Medicare to--by care of some
uncompensated areas and the financial pressure that results
from that. In your testimony you mention there is a couple of
problems, one being that the specific hospital groups' ratings
really gives the least favorable rate to rural hospitals.
Mr. Hackbarth. Right.
Mr. Camp. And how do you think--with fewer than a hundred
beds. How do you think that could be improved?
Mr. Hackbarth. Well, disproportionate share we believe
should be equally available to urban and rural hospitals alike.
It was initially developed with an eye toward inner city
hospitals with a high share of low-income patients and often
relatively low shares of Medicare patients. Now the rationale
has been expanded, and we advocate taking into account all
types of uncompensated care and expanding the eligibility
equally to hospitals.
In order to do that completely, we need to get some
additional data, which is now being collected on uncompensated
care burdens, and the information to make a uniform adjustment
and recalculate the formula will be available in about 2 years.
So what we have advocated as an interim step is to lift the cap
that was imposed last year from 5.25 percent up to 10 percent,
and that would substantially help many rural hospitals. We do
not advocate removing the cap at this point, because using the
old formula that was developed for urban hospitals, it would
result in windfall payments for many rural hospitals. And
rather than have a windfall that then has to be taken back when
we have the right formula, we want to take an interim step and
then implement the new formula.
Mr. Camp. OK. Thank you very much. Thank you, Madam
Chairman.
Chairwoman Johnson. Thank you. Congresswoman Thurman.
Mrs. Thurman. Thank you, Madam Chairman.
I want to go into a little bit of the disproportionate
share, too, because that seems to be a real issue for some of
our rural hospitals, and I think that something that--I would
like to know if we have looked at any of this data. Since the
welfare reform took place and as people got into the system and
started coming off of the system, have you seen any increases,
particularly in the rural areas where unemployment is higher,
less opportunity for jobs, probably, you know, sort of issues
going on there? Has that taken place when you look at the
disproportionate share and why maybe some of this has gone up
in these areas and why rural hospitals are concerned with it?
Mr. Hackbarth. Well, certainly the overall economic
conditions in rural communities are a factor in the financial
problems facing rural hospitals. The nature of the problems
vary a little bit as you move across the country, but there
clearly are areas where there is just general economic distress
that has an adverse impact.
As to its effect specifically on the disproportionate share
adjustment, I don't have any specific numbers to share with you
there. But to the extent that there are more people without
insurance and more uncompensated care, it would mean higher
disproportionate share payments once we go to a new formula
that is now under development.
Mrs. Thurman. With that--I mean, in your recommendations
you talked about there should be a 10 percent add-on for
disproportionate share, if I read and understood that
correctly. How did you get to that? What kind of data and what
kind of analysis was done, or is it just kind of this is what
we ought to do? I mean, why would we not put the same system in
rural areas as we have in urban areas?
Mr. Hackbarth. Right now the problem is that we don't have
the data necessary to revamp the whole disproportionate share
system. We strongly advocate that. The data to allow a
revamping of the system are now being collected, and we hope
that the new system can be in place in a couple years.
Mrs. Thurman. But based on that recommendation, then, it is
just kind of arbitrary 10 percent----
Mr. Hackbarth. Yes. Elevating the cap from 5 and a quarter
to 10 percent, there is no magic about 10 percent, but we
wanted to take a meaningful step in the right direction without
getting in a situation where we would have payments that have
to be taken back when we have the new formula in place.
Mrs. Thurman. OK. And then the standardized payment issue,
because that is another issue that has been brought up with our
rural hospitals about the base payment, at those over one
million population would receive about 1.3 percent. Why
wouldn't we equalize that for everybody?
Mr. Hackbarth. When we analyzed that--again, what we try to
do is compare payment rates to costs, and in fact the costs of
rural providers on average are lower than urban providers. So
increasing the payments by 1.6 percent across the board would
not be a very targeted solution. It would go to hospitals that
need it and don't need it alike. Our preference is always to
identify particular problems with the payment system and
address those through targeted adjustments, like low volume,
for example.
Mrs. Thurman. We are going to hear some testimony from
rural hospitals in a little while, and one of my concerns in
all of this and one of the things that they point out is that,
you know, we keep talking about making these changes and these
things are going to happen and this is what we did in BBA and
this is what we did in 1999 and this is what we did in 2000,
but the fact of the matter is money of this has been put in
place, and so we have got some real lag time here. At the same
time, as you have mentioned, we have got the disparity between
the urban and rurals now. I mean, what comfort can you give to
some of our rural institutions that these things absolutely are
going to happen? Because they live from day-to-day thinking
this is going to happen, and this is going to be put into
place, and it is a real concern for them.
Mr. Hackbarth. Yeah. Well, we share your sense of urgency
about this. It is not enough to talk about possible solutions
or future solutions. They need to come quickly.
Some things have happened. For example, last year making
rural hospitals eligible for disproportionate share payments
even with the cap is a major step in the right direction. It
will increase payments on average to rural hospitals by about
1.4 percent. That is meaningful money.
The steps that we advocate in this report, the low volume
adjustment, lifting the cap on disproportionate share and so
on, would on average increase payments to rural hospitals about
1.8 percent on top of last year's.
Mrs. Thurman. Because they have a larger indigent
population?
Mr. Hackbarth. Right, in terms of--not necessarily a larger
but certainly they do have an indigent population that needs to
be recognized. Then changes that are now under development
having to do with disproportionate share still again and with
the wage index would still further improve payments to rural
hospitals and tend to increase their average margins. We
absolutely share your sense of urgency and urge the Secretary
to work as quickly as possible on these issues.
Mrs. Thurman. Madam Chairman, will we have another round?
Chairwoman Johnson. Probably not with Mr. Hackbarth,
because we need to get to the next panel.
Mrs. Thurman. Can I ask one more question, just based on a
little of the conversation that was going on here as to access
outside of the hospital setting? Because, as noted, we have
this problem with the fact that we don't have potentially home
health care as readily accessible. We don't have critical
nursing, skilled nursing needs. And yet one of the things that
is going to happen in October is we are actually going to lose
this 15 percent that we have been given. We are going to
actually lose that.
Can you offer any suggestions? I mean, my feeling is that
we should not do this until we get everything in place, because
I think it is just going to exascerbate some of the situations
that we have been talking about.
Mr. Hackbarth. Well, the new prospective payment systems
for home health and outpatient services are tricky. There are
some differences--meaningful differences between rural
providers and urban providers that need to be taken into
account. We would not advocate a 15-percent reduction at this
point in the home health payments. We think it is wise to keep
that on hold.
We also support the 10 percent add-ons for rural home
health providers that were included in the legislation. We
think that money buys us some time to evaluate the impact of
the system and make appropriate adjustments. It is time that we
need.
Mrs. Thurman. Thank you.
Chairwoman Johnson. Then to just clarify for the record
from your earlier statements, that you do not support wage
floors as a policy and you do not support the sort of arbitrary
increase in the wage index that some are looking to strengthen
rural providers but that you do support some adjustments that
retain the relationship between costs and reimbursement----
Mr. Hackbarth. Yes.
Chairwoman Johnson. But will result in higher payments?
Mr. Hackbarth. Yes.
Chairwoman Johnson. Thank you.
Mr. Hackbarth. On the wage index, what we support in this
report is looking at the so-called labor share of the
prospective payment rate. Currently, about 71 percent of the
rate is adjusted for local wages. There has been concern among
rural providers that that number is too high, and since their
wage indexes are less than one, they lose money in the process.
Chairwoman Johnson. In other words, many things that they
buy that are called inputs they have to buy from the same
general market that everybody buys.
Mr. Hackbarth. Exactly.
Chairwoman Johnson. And so they get penalized, I guess?
Thank you.
Mr. Hackbarth. Yeah. So the issue is, is 71 percent the
right number or is it 69 or some other figure?
Chairwoman Johnson. I do think that your testimony was very
useful in going into some of those specifics. Let me move on to
Mr. Nussle.
Mr. Nussle. Thank you, Madam Chairwoman; and let me
compliment you on calling this hearing and talking about this
very important subject. I appreciate that. My constituents who
live in very rural area appreciate that.
I wanted to start off, Mr. Hackbarth. I am fascinated by
your testimony in the way you begin on Page 1, and this is
just--let me read this, and then I want to discuss this. It is
fascinating.
``Medicare's most important objective is to ensure that
beneficiaries have access to high-quality care. Because some
rural communities face adverse economic conditions that may
limit the ability of local providers to furnish the broad array
of needed services, policymakers have been concerned that rural
beneficiaries may not get the care they need.''
Because some rural communities face adverse economic
conditions that limit the ability to provide these services--
what economic conditions are you talking about?
Mr. Hackbarth. There are two levels. One is that the
general economic situation, which may be high rates of
unemployment, a lot of people without health insurance, factors
that are not specific to the Medicare Program, that can cause
some financial distress for providers.
Then there are factors obviously specific to the Medicare
payment formulas and the like that we have been talking about
that we have concerns are not appropriate for rural providers.
Mr. Nussle. In your first part, you talk about many rural
communities face these market conditions--this is on Page 4--
that may depress demand or supply, a small population,
declining and disproportionately older population, low
household incomes, high proportion lacking health insurance,
physical isolation, weak and restrictive State policies, and so
forth, and so forth.
Basically, what I see you saying there are two things. One
is that--and you said this--I believe you have said it a couple
of times, although I can't find the quote--that there is an
inadequacy between the payments to rural and urban areas. That
is number one. And, number two, because of that they can't
transfer those costs to anyplace else, which is really number
two. Isn't that what you are getting at here, that Medicare
payments are inadequate, number one? And because they are
inadequate and they are inadequate for many hospitals, what
they do is they look around and they say, where can I put these
costs. And urban areas have the ability to transfer those costs
to other places, but rural areas don't? Isn't that what you are
basically saying?
Mr. Hackbarth. Well, we are concerned about specific
failures in the Medicare system, failures to account for
differences in the situation that rural providers face.
I would note, though, that if you look not just at the
Medicare margins but the overall financial performance of rural
hospitals versus urban hospitals, the average total margin--
which includes not just Medicare but all payers--is higher
among rural hospitals on average than among urban hospitals.
The reason for that, we believe, is that, yes, there are some
specific rural hospitals in economically depressed communities
that have problems. But in many rural communities there are
relatively high levels of insurance, relatively good economic
conditions, and there is not as much competition for those
rural providers. Unlike an urban institution that faces lots of
close-by competitors and has to deal with managed care plans
trying to negotiate them all down, the rural providers have
much more leverage in dealing with private payers. And so, as a
result of that, we have this seemingly anomalous situation
where rural providers have lower Medicare margins but higher
total margins than urban providers.
Mr. Nussle. Well, I don't know what hospitals you are
talking about. I mean, I have gone and looked at the books in
my district, in my rural area. And I know that you may be
trapped in what you told me not to do, and that is, don't
generalize. So, I am not going to hold you to that. But I will
just tell you, I don't know what you are talking about. I don't
know what hospitals you are looking at.
Because the bottom line--I mean, how can you have on the
one instance low health care coverage, high unemployment, all
of those things you said and these hospitals are still able to
provide a much higher margin? Now, part of it may be that they
are more efficient. And if that is the case, that flies in the
face of the other argument that was made, and that is that
really you didn't see a difference between the efficiencies.
Mr. Hackbarth. Well, Mr. Nussle, I really do think that the
reconciliation of these statements is in the diversity. I
happen to come from a rural community. I live in a rural
community in Oregon, Bend Oregon. Our----
Mr. Nussle. How many people?
Mr. Hackbarth. Fifty thousand people.
Mr. Nussle. Fifty thousand?
Mr. Hackbarth. But we are rural.
Mr. Nussle. Let me just share with you, Mr. Hackbarth, that
that ain't rural--with all due respect. There are places that
we are talking about that are rural, that 50,000 people--well,
let me just close with something, because I--there is never
enough time to discuss this. And I just--I am very frustrated
about this. But I will ask you one thing that I think you can
probably answer.
The people in the rural areas pay the same taxes as the
people in the urban areas. So people in your 50,000 town pay
the same as my 5,000 town, don't they? I mean, why is it that
one size does not fit all when you are talking about it from
the analysis standpoint, but from the policy standpoint, we
constantly try and find a one-size-fits-all solution to the
Medicare reforms that we put in line, and it never treats any
of these providers that you say is the--you know, the frontline
of providing high-quality care. But we don't provide them the
kind of fairness in the system that they deserve so that these
taxpaying beneficiaries who have paid taxes into Medicare their
entire life get the same kind of opportunities throughout the
country. And let the market decide. If they want to buy a
helicopter, buy a helicopter. If they don't, then name it after
a big contributor and, yeah, build a hospital if that is what
they want to do.
But the folks--I will just tell you, and, you know, you can
analyze this all you want, but the folks in my area are
starting to see this as an issue of clout and who has had the
clout to be able to get their voice across. And if it is a
matter of clout, the rural areas will stand up and fight for
it. We can do that. We have been trying to deal with it as best
we can.
But I am very frustrated that we are getting nickeled and
dimed over this issue, and in your very first statement you say
that they face adverse economic conditions. I will tell you,
the mother of all adverse economic conditions in this is the
fact that they don't get the same reimbursement. They don't
even get anywhere close. That is totally and completely unfair,
and we are going to have to change that system if we are going
to get the kind of care that you say we deserve.
I would be glad to have you come out to a rural area, which
has a lot less than 50,000 people, so you can see what some of
those bottom lines are all about.
Mr. Hackbarth. Chairman Johnson, could I just spend 1
minute on this? Because I think this is a really critical point
in the discussion.
Chairwoman Johnson. Yes, sir.
Mr. Hackbarth. I recognize that the community that I live
in is atypical, atypical in a lot of ways, and my point is not
to hold it out as a typical rural community but in fact to
emphasize that it is different. Yet the categories that we use
in Medicare are so broad that my town is categorized as rural,
just like some very small town in Iowa with very different
economic resources and health care resources.
To the extent that we use these big categories and say that
we want to increase the base rate for every rural hospital,
hospitals like the one in my community that may not need it are
going to get money, just like everybody else. That is why we so
strongly advocate targeted solutions and not across-the-board
solutions. We want to identify particular problems and address
those and not just spread money across the board to all rural
hospitals. Rural America is too diverse for that to be a proper
solution.
Mr. Nussle. Well, I will just tell you, we will take the
opposite deal. We will let you target the urban areas, and we
will take the opposite deal. From a tax fairness, from a
beneficiary standpoint, I don't know how you can advocate--I
mean, I appreciate the fact that the news you have made today
is that there is an inadequacy between urban and rural. I
appreciate that. I am glad that MedPAC has finally come forward
and made that kind a very grandiose statement. But I would
suggest to you that your solutions lack a basis in reality that
need to be there in order for us to solve this problem, and I
would invite you out to real rural areas so that you can
examine this further.
Chairwoman Johnson. Mr. Hackbarth, I think that MedPAC
needs to help us on this issue.
Your testimony, I would point out to Mr. Nussle--I am going
to recognize Mr. Pomeroy in a minute. But this issue of the
impact of low volume on rates, the issue of the impact of the
longer length of stay on costs in the face of rates, the impact
of input prices are very significant, honest differences in the
relationship between cost and payment, between cost--just a
minute, Pete, let me just--very important and honest
differences between the way our payment formula and the real
cost of these small institutions that are interfaced--we need
to look at that, and we need to look at how much of that--how
much of correcting that problem so we have a more honest
relationship between cost and payment, which is what Medicare
ought to be able to do, and how much of the problem is the fact
that the bigger issue that you mentioned under disproportionate
share, that has to do with the fact that Medicare as matter of
policy does not reimburse for disproportionate share for
uncompensated care, unless it is an uncompensated care Medicaid
person or Medicare.
So there is a whole group of uncompensated care people, the
uninsured, that tend to be a very big group. They are not as
poor as Medicaid, and they are not in a public program, and
they are not seniors. So to what extent are they the cause of
the problems in the rural group?
When you look at averages, I am glad to hear that, on
average, totally, they are doing pretty well, but I face thisin
the urban area, too. You know, on average doesn't help your hospital
that is failing and it is failing because you are not reimbursing the
costs.
So we do need to look at the specific things, see how much
of the problem that absorbs, that will address, and then we
need to look at how much is the burden of uncompensated care
that in the past the government hasn't paid for. Because you do
recommend and you are collecting the data so that next year we
would be able to make some specific response to that burden? In
the urban areas we make a very, very small partial response
under the medical education reimbursement rates, but even that
really doesn't recognize the same problem in urban areas.
So, I think if we can still continue to pursue costs and
payments but also look at what is causing the disparities
beyond that. So if you can give us back some better information
about who is in that hundred-bed hospital group. You know, how
many of the rural hospitals that are not showing healthy
margins are in that hundred-bed group? How many are we not
going to reach if we don't address that issue?
So, we need more detailed data to see who is not doing
well, what kind of institution they are and how much they would
be affected by the specific cost items that you address. Mr.--
--
Mr. Nussle. Would the Chairwoman yield?
Chairwoman Johnson. Yes, I would be happy.
Mr. Nussle. You were much more eloquent in saying what I
was trying to say.
Chairwoman Johnson. No, I appreciate your----
Mr. Nussle. What I was trying to say is I don't see
myself--I don't see my district or any of my facilities in the
averages that are being discussed here. I just don't see it.
And that is what concerns me, is that I don't know what you are
describing as rural, because it ain't here. And when I don't
see it, then I am worried about the results of the report. When
you say there is a discrepancy or a disparity or whatever,
irregularity, amen. Thank you.
Mr. Nussle. But I don't see myself in the averages, and
that is what really concerns me.
Chairwoman Johnson. That is why I am very pleased that
actually you do go into some of the specific ways in which the
formula doesn't work in rural areas, because years ago in the
eighties I went through this very same problem with hospitals
in my district that are rural. You know, two-thirds of my towns
have less than 3,000 population, so I have what are rural
hospitals, but because of the nature of New England, they
designated themselves as urban because they have to pay the
same wages as the urban areas. Now they are suffering the
problems of the rural hospital under an inappropriate payment
system, and we did make some adjustment, very modest. There is
a formula, and when you put this formula across the country, it
was all in New England, Tennessee and southern Illinois.
But the problem with a national formula is that it is very
hard to make a national one-size-fits-all policy actually fit
the extraordinary variety of institutions that not only our
seniors depend on, but, remember, every age group depends on
these institutions. So the--on average the policymaking process
is a problem, which is exactly why we need to strengthen
Managed Care+Choice because it has a different ability to
negotiate with every single plan.
But, I want to recognize Mr. Pomeroy. He has a deadline and
wants to make a brief statement.
Mr. Pomeroy. Madam Chair, thank you, and thank you for
allowing me to sit in on part of this hearing. For 8 years I
was the State's insurance commissioner and tracked the health
of our rural hospitals very closely. For the last 8 years I
have been in Congress, and I have continued to track. Over this
period of time, I have seen substantial decline in the
financial condition of these facilities.
I guess I ascribe myself closely with the frustration
voiced by Congressman Nussle, who has done excellent work in
trying to get some of these reimbursement issues addressed, but
we are not there yet.
I am pleased with the forthright acknowledgment of some of
the issues in the MedPAC report, but have concern that the
prescription doesn't match the diagnosis. I mean, you diagnose,
for example, relative to rural hospitals in the West. Where I
come from, the main risk factors affecting Western hospital
markets are small populations, declining populations,
disproportionate numbers of residents age 65 and older. I would
add to that two conditions that are really threatening
facilities, and that is the ability to staff and ability to
recover cost of providing services, as the Chairwoman just
referenced.
Again, back to this, you said that is the diagnosis, but
your prescriptions in terms of a little more tinkering here and
a little more tinkering there I am not sure is going to be
aggressive enough without having the face of health care
delivery change very significantly. You indicate that right now
we are able to match services, and Medicare recipients are
reasonably satisfied. I think you don't have to look forward
very far and see a very different situation. It is kind of like
someone with an internal hemorrhage have a doctor say, well,
you look good now; your situation is about to change very
significantly based on things that maybe aren't readily
apparent or captured in a patient safety.
That concludes my observation, Madam Chair, and I
appreciate----
Chairwoman Johnson. Well, I am appreciative of your
attendance.
Earl is a new Member of the Way and Means Committee. He is
not a Member of this Subcommittee, but he and I have worked on
a lot of issues together, and his experience in insurance will
help us.
But I do want you to go back in the detail of the testimony
so that you can see how the factors in the formula just don't
fit, and if we adjust that, we should at least be able to deal
with it honestly, you know, and we need to try to stick to a
formula that has a fact-based structure, the problem your
hospitals face with getting properly reimbursed.
I am very concerned about this nursing issue and the fact
that it is going to hit very hard, very fast, and earlier in
Mr. Hackbarth's testimony he mentioned that one of the problems
in the wage area was that the data is 4 years old.
So we will be working on those issues, but I hope we will
have the benefit of your expertise in the details. Mrs.
Thurman.
Mrs. Thurman. Madam Chairman, just to the nursing issue and
to some of the whole health care provider issues in rural, and
something I know you and I have worked on, and certainly
something we probably, and hopefully States, are working on as
well, but what my students are telling me at the University of
Florida is part of this is the whole issue on loans and what it
costs them. They can't afford to go in many of these rural
areas.
Chairwoman Johnson. We do hope to get into another hearing
on the nursing issue.
Mrs. Thurman. And we have hospitals now going overseas
looking for nurses.
Chairwoman Johnson. Right, in large numbers.
Thank you very much, Mr. Hackbarth. I didn't get a chance
to ask you to comment on the presence of Sterling, which is a
fee-for-service service Choice plan out there now in the rural
communities. Just in a word, do you know much about it, and do
you think it is doing well?
Mr. Hackbarth. Well, I don't know much about Sterling in
particular. I do have the concerns that I described earlier
about the system of floors and Medicare+Choice and the
opportunities they present.
Chairwoman Johnson. We will be talking with you more about
that because it is the first Choice plan that has penetrated
the rural areas, and we need to know more about how it is doing
and whether it is impacting some of these problems. Thank you
very much, appreciate it.
And would then the panel come forward. Kathleen Dalton and
Curt Mueller and Keith Mueller. Kathleen Dalton is a Fellow at
the Cecil Sheps Center for Health Services Research, University
of North Carolina at Chapel Hill. Curt Mueller is with Project
HOPE, the Walsh Center for Rural Health Analysis. And Keith
Mueller is the director of RUPRI Center for Rural Health Policy
Analysis in Omaha, Nebraska.
We welcome you and appreciate your presence here and your
help in understanding these issues. Dr. Dalton, if you will
proceed.
STATEMENT OF KATHLEEN DALTON, PH.D., RESEARCH FACULTY MEMBER,
CECIL G. SHEPS CENTER FOR HEALTH SERVICES RESEARCH, UNIVERSITY
OF NORTH CAROLINA AT CHAPEL HILL
Dr. Dalton. Madam Chairman and members of the Committee, my
name is Kathleen Dalton. I am a faculty member at the
University of North Carolina where my field is health care
finance. I have been asked to report on our research regarding
specific Medicare prospective payment issues as they affect the
rural hospitals.
Medicare's inpatient payments historically have been more
generous to urban than to rural hospitals. This is evident in
the longstanding differences in their respective average
payment-to-cost ratios. We find, however, that these
differences are due primarily to the disproportionate share and
the indirect medical education add-ons to the prospective
payment rates rather than problems in the underlying rate
structure. Among hospitals not eligible for either of these
special adjustments, Medicare's inpatient payments average
about 5 percent above cost for both the rural and the urban
facilities.
The wage index has often been identified as one of the
chief problems facing rural hospitals under prospective
payment, but our research thus far has found little evidence
that the index is a contributing factor in poor rural margins.
We have concluded that while the index is not perfect, it has
improved over time, and it is an adequate instrument to
accomplish the purpose for which it is designed. The rural
labor markets as now defined actually serve to protect the
margins of hospitals in the very smallest and most rural
communities by grouping them with higher-wage facilities.
The gap in the urban and rural PPS margins appears to be
more a reflection of Federal policy, in this case one of
directing additional resources to safety net and teaching
providers, than an indication that rural hospitals as a group
are unable to compete under the discipline of the prospective
payment system.
The disproportionate share adjustment, or DSH, is now
recognized as the vehicle through which the Medicare Program
shares in the cost of indigent care, just as other payers share
when uncompensated care costs are factored into hospital price
structures. DSH adjustments are an add-on to the payment rates.
They are proportional to the hospital's share of low-income
payments, but the formulas, as you have heard, are not equally
applied across rural and urban hospitals. If we want to close
the gap between rural and urban Medicare margins, then parity
in the DSH formulas is the first change that should be
considered rather than changes in the wage index or in the base
payment rates.
MedPAC has already recommended reducing the differences in
the DSH formulas across hospitals. If their recommendations
were implemented, the rural and urban Medicare margins would be
closer, though the rurals margins would always be somewhat
lower because the overall indigent care burden is not as high
in rural areas. But if the objective of the DSH adjustment
really is to allow Medicare to shoulder its share of indigent
carecosts, then the DSH adjustment should be made available to
all safety net providers, including critical access hospitals and other
hospitals outside of the PPS system, and it should be made available
for outpatient care.
Our research does not show that special payment
considerations need to be given to all small rural hospitals.
Nevertheless, there are some groups of rural facilities,
particularly very small, low-volume or isolated facilities,
that struggle to cover their costs under the inpatient payment
rates. Many of these already qualify for a variety of special
payment exceptions or have opted for cost-based reimbursement
as critical access hospitals. The newly converted cost-based
hospitals are generally receiving much-needed increases to
their reimbursement, but only at a price, by giving up a
possibility that Medicare services will ever contribute to
their needed reserves.
An expanded disproportionate share adjustment will help
many of these same hospitals by targeting assistance to rural
safety net providers, but there may still be a class of
vulnerable hospitals that are essential to their communities
and that will need extra help if Congress wants to assure
continued and stable access to services for all rural
beneficiaries. For this class, perhaps a simpler and more
effective way to address their payment problems might be by
retaining their participation in prospective payment, but
offering a cost-based payment floor. This would be a commitment
that the Medicare program would never pay less than the
essential providers' cost of delivering services.
These hospitals have very small operations to begin with,
so even if many facilities were deemed to be essential, the
total budget impact would probably be very small. A cost floor,
we believe, would be better suited than the current
proliferation of special add-ons and permanent cost-based
alternatives to target help only to those institutions that
need it and only during those years when they need it, without
losing the inherently beneficial incentives of a prospective
payment system.
This concludes my remarks. Thank you very much.
Chairwoman Johnson. Thank you very much, Dr. Dalton.
[The prepared statement of Dr. Dalton follows:]
STATEMENT OF KATHLEEN DALTON, PH.D., RESEARCH FACULTY MEMBER, CECIL G.
SHEPS CENTER FOR HEALTH SERVICES RESEARCH, UNIVERSITY OF NORTH CAROLINA
AT CHAPEL HILL
Madame Chairman and members of the committee, thank you for
inviting me to speak to you today. My name is Kathleen Dalton and I am
a research faculty member at the University of North Carolina, where my
field is health care finance. In recent years I have participated in
several funded research projects that investigate rural hospital cost
and reimbursement issues. I have been asked to describe some of our
findings to you, focusing specifically on the role of Medicare payment
policies in addressing special financial problems faced by rural health
care institutions.
Rural providers and constituent groups are alarmed at the
deteriorating Medicare and overall financial margins of their health
care providers over the past three years. Several advocacy groups are
examining specific components of Medicare's prospective payment
formulas to identify ways in which to obtain some regulatory or
legislative relief. To help in assessing some of the specific issues
with regard to Medicare's payments, my remarks will cover the following
topics: (1) The hospital area wage index; (2) the Medicare
disproportionate share adjustment to hospital prospective payment
rates; (3) the gap between rural and urban Medicare payment ratios; and
(4) special payments for categories of rural hospitals, particularly
the expansion of cost-based reimbursement alternatives.
Hospital Area Wage Index. The wage index is used to adjust
PPS rates for regional differences in the cost of labor. Many
rural providers and advocates believe that the wage index
penalizes rural hospitals because it overstates average wage
differences and is based on poorly defined labor markets. Our
studies have led us to conclude that the index does not
overstate regional differences in average labor costs. In our
research, in fact, we find little evidence that the wage index
contributes to low Medicare margins. The rural labor markets as
currently defined are too large and appear to incorporate
multiple market areas. Yet we found that this deficiency has
the effect of protecting hospitals in the very smallest and
most rural communities because they are grouped with higher-
wage areas. In earlier years there was some evidence that
hospitals in the larger rural communities were penalized by the
broad rural market definitions, but by the mid-1990's many of
these hospitals were allowed to be reclassified into
neighboring urban labor markets, without bringing down the
index values of the markets from which they transferred.
Any set of labor market boundaries will create individual
cases where there are arbitrary differences between facilities
on either side of a boundary. The existing exceptions process,
however, allows for geographic reclassification to regroup
cases to neighboring markets if they can meet certain criteria.
Reclassification cannot fix all boundary problems, but we
believe we have demonstrated that, for rural hospitals as a
group, the exceptions process has substantially improved the
equity of the wage index. Last year's legislative and
regulatory changes to the reclassification rules will improve
the index further.
The hospital wage index is now used to adjust prospective
payment rates for home health and skill nursing services in
addition to hospitals, but without the benefit of the
geographic reclassification rules. The reclassification
provisions were critically important to our findings, and we
conclude that the wage index adjustments to these non-hospital
rates will not be equitable unless similar reclassification
provisions are available. If reclassification continues to be
decided at the individual institution level this process could
add considerable administrative burden to the new payment
systems. If this is unacceptable, it should be possible to
design a provision where the skilled nursing and home health
facilities in a given county are paid under the same
reclassified index values of that county's hospitals, wherever
a majority of its hospitals have already proven that the
reclassified labor market is more appropriate.
Disproportionate Share Adjustments (DSH). The stated purpose
of Medicare's DSH adjustment has changed over the years since
it was first adopted. We now appear to have a consensus that
the DSH policy objective is to permit the Medicare program to
share in the cost of indigent care, similar to the way in which
other payers share when uncompensated care costs are factored
into hospital price structures. Under this approach, additional
DSH payments are not intended to reflect the higher costs of
delivering care to Medicare patients, but rather, the
distributed costs of delivering care to other, uninsured
patients. DSH is thus acknowledged as a policy-driven, rather
than a cost-driven, adjustment to the national standard rates
under PPS. This underlying premise has been the justification
for MedPAC's DSH-related recommendations over the past several
years. MedPAC has recommended parity in the DSH formulas across
all hospitals, and that HCFA should develop an improved measure
to use a proxy for each hospital's indigent care burden. The
Benefits Improvement and Protection Act of 2000 gave rural
hospitals parity in eligibility for DSH adjustments, but not in
the formulas that govern the size of the proportional
adjustment.
If Congress accepts the premise that DSH adjustments should
underwrite Medicare's share of indigent care, then several
payment policy changes flow logically from this position that
go beyond MedPAC's recommendations for formula parity.
DSH adjustments should be available regardless of
the particular Medicare payment system under which the facility
is paid. Under current law this adjustment applies only to
inpatient PPS services. Cost-based and exempt (TEFRA-based)
facilities also provide indigent care, and should be eligible
for similar policy adjustments based upon their individual
indigent care loads.
DSH should be applicable to other hospital services,
clinics, if their indigent care needs are similar. HCFA's
proposed regulations for prospective inpatient rehab services
include DSH provisions, but hospital outpatient PPS and clinic
per-visit rates do not, even though indigent care burdens are
at least as great, or greater, in these settings.
DSH adjustments should not be implemented as
``budget neutral'' changes, where the extra payments are funded
by reducing the base rates for all providers. Budget neutral
DSH adjustments would redistribute the burden, but would not
allow the Medicare program to underwrite its share relative to
other payers.
Medicare payment ratios. Medicare's inpatient payments
historically have been more generous to urban hospitals than to
rural hospitals. This is evident in the long-standing
differences in their respective average payment-to-cost ratios.
When we analyze payment ratios from recent years we find that
nearly all of the differential can be attributed to two of the
special policy adjustments that Congress has created--the
disproportionate share and the indirect medical education (IME)
add-ons to the per-case payment rates.\1\
---------------------------------------------------------------------------
\1\ The IME adjustment is theoretically cost-based, but the formula
intentionally computes an adjustment that is greater than the expected
cost differences in teaching hospitals. The portion of the IME add-on
rate that is attributable to this intentional increase (we estimate it
at 30%--40% in the FY 1998 data) is viewed as a policy adjustment.
---------------------------------------------------------------------------
In fiscal 1998, for example (the last year for which complete
hospital data were available from HCFA, and the first year in
which the effects of the Balanced Budget Act of 1997 were felt)
Medicare's inpatient PPS payments averaged 15.1% above costs
among urban hospitals, but 6.9% above costs among rural
hospitals. Among non-teaching hospitals the gap is much smaller
(10.4% compared to 6.8%). If we remove the DSH payments from
the calculation, the payment ratios are quite similar for both
groups (close to 5%, though actually slightly higher for
rural); if we look only at rural and urban hospitals that
qualify for neither adjustment, we find that their average
payment-to-cost ratios are also about 5%. Thus, the gap in
urban and rural PPS margins appears to be more a reflection of
federal policy than an indication that rural hospitals, as a
group, are unable to compete under the discipline of the
prospective payment system.
[GRAPHIC] [TIFF OMITTED] T4411A.003
Recent changes in the DSH policy will make more rural
hospitals eligible for these payments, which will reduce the
difference in margins between rural and urban non-teaching
facilities. If MedPAC's other recommendations regarding the DSH
formulas are implemented, the gap will narrow even further. We
could not expect the gap to be eliminated, however, because the
policy objectives being met by these two payments address needs
that are unequally distributed between rural and urban
communities. Teaching hospitals are predominantly located in
urban areas, andurban hospitals have proportionally higher
indigent care loads, so even under identical DSH formulas they
would tend to have higher DSH adjustment rates.
Even without the effects of policy adjustments, similarities
in average payment-to-cost ratios across groups still mask real
differences in their distributions. The proportion of hospitals
receiving Medicare PPS payments that are below their cost of
delivering services is always greater for rural than for urban
facilities. A subgroup of very small rural facilities has
always struggled to cover costs under the PPS rate structure.
Many of these have adapted by becoming cost-based Critical
Access Hospitals (CAH). If the facilities that are struggling
are important to protect in order to maintain rural
beneficiaries' access to care, then the task of lawmakers is to
identify whether and how to address the problems of these sub-
groups with further payment policy adjustments.
Special rural payment exceptions and the expansion of cost-
based alternatives. The various Medicare prospective payment
systems already define several categories of rural health care
providers that are eligible for special payments or exemptions
from rate limits. These categories target different groups of
facilities with varying levels of success. Some provide only
small supplemental payments to groups that are in need of
substantially more relief, while others provider substantial
payments to facilities that qualify on the basis of a
geographic characteristic, yet may not demonstrate any
financial need. Much attention recently has focused on Critical
Access Hospital (CAH) status, which allows very small, isolated
hospitals to withdraw from prospective payment systems
altogether for inpatient, outpatient and swing bed services,
and receive cost-based reimbursement. Proposals to expand cost-
based alternatives to other rural hospitals have been
circulating among rural advocacy groups; at the same time,
MedPAC is proposing a new low-volume adjustment to the
inpatient PPS rates, in order to provide an alternative to
cost-based payments for the smallest providers.
The proliferation of special exceptions and protected status
makes it difficult for providers, analysts and lawmakers alike,
to evaluate the adequacy of Medicare payments in rural
settings. Our analyses of the economic and related health-
delivery problems of rural communities have revealed great
geographic variation. Severe isolation and sparse populations
predominate in the west, while low-volume but only moderately
isolated providers predominate in the mid-west. In the
southeast and Appalachian regions we find multiple proximate
hospitals, with low average census figures and very low average
occupancy, but they serve communities that have very low
incomes, poor employment and high levels of indigent care.
When we examine the Medicare margins as well as the overall
finances of rural hospitals over periods of several years, we
are struck by two characteristics in particular. First, even
among those located in the most disadvantaged of rural markets,
some facilities manage to earn good margins on Medicare and/or
other patient services. Thus any Medicare policy offering
automatic payment adjustments based on geographic criteria
without a demonstration of financial need is potentially
misdirected. Second, the margins for any one institution are
unstable from year to year, particularly in the smaller
providers. Hospitals that opt for cost-based alternatives to
Medicare PPS are guaranteeing that they will not have to
deliver Medicare services at a loss during bad years, but they
are also giving up the possibility of ever earning a surplus
during better times. In an uncertain environment where many
providers are able to earn a surplus on some PPS services in
some years, the expansion of cost-based reimbursement should be
a last resort alternative.
We think that a well-designed DSH policy can alleviate many
of the problems of rural providers located in very poor areas,
without over-committing Part A trust fund support. Many of
these communities may continue to need additional local and
state-level public support, or even a different level of
federal support, but those needs should be considered over and
above Medicare's share of the burden.
Apart from the DSH adjustment, the underlying justification
for special exemptions, payment add-ons or other subsidies
should relate back to the Medicare beneficiaries and the need
to provide adequate access. There is a certain class of rural
provider that should be protected, if there is evidence that
the loss of these providers could jeopardize beneficiaries'
access to care. That class may be difficult to identify, but we
think that the criteria should relate to characteristics of the
community (or beneficiaries) rather than to the financial
condition of the individual institution. The class should
certainly include very isolated providers, but it may also
include providers that are not isolated, possibly are
underutilized, but that serve as an important focal point of a
poor community's health infrastructure (for example, where the
loss of the hospital would jeopardize the town's ability to
retain physicians, pharmacists or emergency medical personnel).
Even if the class is broadly defined in terms of the number of
qualifying providers, that group is not likely to represent a
very large share of total Medicare payments. Whether Congress
chooses a broad or narrow definition of the group, the question
remains, what is a better way for Medicare to support it that
would not overwhelm the system with multiple options, yet would
still target only those institutions in need??
Many of the special payment provisions now in place could be
rationalized by simply making a single commitment to this class
of protected health care providers: that the Medicare program
will never pay less than cost for the care of its
beneficiaries, in any year. Paying everyone under the PPS rules
but setting a cost-based floor (while excluding the DSH
payments from the payment-to-cost ratio calculations) could
provide consistent help to marginal hospitals, periodic help to
providers suffering from temporary shifts in demand, and would
avoid unnecessary subsidies to providers that are able to
operate successfully within the discipline of the various PPS
systems. The incremental Medicare payments from such a policy
are likely to be very low (based on our historical estimates
from the inpatient component), and the administrative burdens
would probably be less than those required to support the
current system.
In summary, my points are as follows:
Our research indicates that the wage index is not a
contributing factor to the gap between rural and urban Medicare
payment margins. We find that the wage index does an adequate
job in adjusting hospital payments for regional wage
differences; however, opportunities for geographic
reclassification must be extended to the home health and
skilled nursing prospective payment system rules for the same
index to be equitable in these areas.
If Congress' objective in designing the
disproportionate share adjustment is, in fact, to allow the
Medicare program to share in the costs of indigent care, then
the DSH adjustments as now computed are arbitrary and
incomplete. The formulas should be made consistent not only
across all types of PPS hospitals, but across non-PPS hospitals
as well. They should also be developed for outpatient services,
clinics, or other Medicare institutional providers that care
for significant numbers of poor or uninsured patients.
If the DSH adjustments were to be modified in this
way, it is my opinion that the simplest way to address the
problems of communities and/or providers at risk under
prospective payment would be to pay all providers under the
appropriate PPS rules, but to promise a minimum cost ``floor''
to those identified as essential institutions. The evidence
does not show that special payment considerations need to be
given to all small rural hospitals, but there is a class of
essential providers that should be protected. A cost floor
approach would target help where and when it is needed, without
disrupting the incentives for efficient care provision that are
built into all prospective payment systems.
Chairwoman Johnson. Dr. Mueller.
STATEMENT OF CURT D. MUELLER, PH.D., DIRECTOR, PROJECT HOPE
WALSH CENTER FOR RURAL HEALTH ANALYSIS, BETHESDA, MARYLAND
Dr. Curt Mueller. Good morning, Madam Chairwoman Johnson
and other Members of the Subcommittee. I am Curt Mueller, and I
direct the Project HOPE Walsh Center for Rural Health Analysis.
I am very pleased to be here to discuss access to care issues
pertaining to rural Medicare beneficiaries.
My bottom line is that although there is some good news to
report, recent evidence suggests that rural beneficiaries do
face access problems, and equity of the Medicare Program is
compromised. At the same time, there are policy approaches that
would help address these problems.
I will briefly summarize the written statement I have
submitted. First let's turn to the evidence.
The good news is that the access to care among rural and
urban Medicare beneficiaries is comparable in many respects.
This is true if you look both at a number of the traditional
measures of access, and it is also true if you look at more
sophisticated measures of access. Evidence from a recent
analysis of more than a quarter of a million program
beneficiaries indicates that rural residents are just as likely
to receive much of the necessary care also received by urban
beneficiaries.
No important rural versus urban differences were found for
27 of 46 necessary care indicators, but there are some
differences between rural and urban areas. Some rural
beneficiaries do face access problems as there were real
deficiencies for 19 of the 46 necessary care indicators in the
study I just referred to. According to the study, rural
populations are significantly less likely to receive timely
EKGs for congestive heart failure, follow-up care after
hospitalization for diabetes, timely gall bladder removal for
symptomatic gall stones, and screening mammography. It is also
important to note that these access deficiencies are most
severe in the most rural of rural areas.
Rural access deficiencies are also important from the
perspective of program equity. In spite of these access
differences, medical care expenditures by urban beneficiaries
are considerably greater than for rural beneficiaries. In 1996,
per capita expenditures for the noninstitutionalized Medicare
beneficiary without any supplemental coverage was 37 percent
greater in urban areas than in rural areas. This difference is
larger than what could be explained by differences in
geographic--geographic differences in the cost of care alone.
It is important to emphasize that equity with respect to
rural versus urban residents does not necessarily require that
per capita program expenditures be equal. Some of the
expenditure differences may reflect differences in taste,
differences in provider style, but there are program actions
that--policy actions that could, by helping to eliminate these
differentials, improve equity of the program.
First, policies that increase the supply of health care
resources in rural areas should improve access. I believe that
access would be improved by work force policies that provide
additional incentives for physicians to locate and maintain
practices in rural areas and by payment policies that assist
rural providers and help ensure their financial viability. An
example is the new Rural Hospital Flexibility Program, which
appears to be helping small rural hospitals overcome financial
problems associated with low volume. In the same way, payments
to physicians under traditional Medicare in historically low-
cost, underserved areas could be increased. This might be
accomplished, for example, either through the current bonus
payment mechanism or by increasing the work component of the
Medicare fee schedule for these physicians. Over time such
adjustments should improve access by helping to direct
physicians to the areas of greatest need.
Second, policies that improve rural beneficiaries' access
to expanded benefits should help improve access in rural areas.
Currently rural residents are less likely than their urban
counterparts to have drug coverage, for example, because they
have less access to employer-sponsored supplemental coverage,
Medicare HMOs and Medicare Choice plans. I support additional
attempts to improve choice in rural areas.
In the short run cost-sharing under Medicare could be tied
to the level of program expenditures per capita. For example,
the Medicare premium could be reduced in areas with lower per
capita program expenditures. Beneficiaries would be expected to
pay a premium equal to 25 percent of program expenditures in
rural areas of the State or region, for example. The difference
between the national and local premiums could then be applied
to subsidize the purchase of more benefits through a
supplemental plan that offers additional benefits.
One final note, although the primary focus of this
statement is on access to care among rural beneficiaries,
monetary barriers of access for the nonelderly are more severe
in rural areas than in urban areas because of a lack of
insurance. There is no Medicare for these people. Because the
Medicare population is relatively larger in rural than in urban
areas, policies designed to improve access to care among the
elderly are likely to strengthen the rural health
infrastructure as a whole, which in turn should improve access
for the entire rural population. Thank you.
Chairwoman Johnson. Thank you very much, Dr. Mueller.
[The prepared statement of Dr. Curt Mueller follows:]
STATEMENT OF CURT D. MUELLER, PH.D., DIRECTOR, PROJECT HOPE WALSH
CENTER FOR RURAL HEALTH ANALYSIS, BETHESDA, MARYLAND
Good morning, Madam Chairwoman Johnson, Mr. Stark, and other
members of the Subcommittee. I am Curt Mueller, Director of the Project
HOPE Walsh Center for Rural Health Analysis. The Walsh Center is one of
several research and policy centers funded in part by the federal
Office of Rural Health Policy (ORHP). My testimony today reflects my
views as an economist and health policy analyst; my views should not be
regarded as representing the positions of Project HOPE, the Walsh
Center, or ORHP.
I am very pleased to be here to discuss access to care issues
pertaining to Medicare beneficiaries. My bottom line is that although
there is some good news to report, recent evidence suggests that rural
residents face access to care problems. Equity of the Medicare program
is compromised. At the same time, there are policy approaches that
would help address these problems.
What Does ``Access'' Mean?
Access to care refers to the potential and actual entry by an
individual or population group into the health care system (Aday,
Andersen, Fleming 1980). At the outset, it is important to recognize
that access is not always realized: not every one, for various reasons,
experiences actual access to care during a defined period of time. But
access is difficult to measure when defined in this way. Among the most
widely used measures of access are measures of actual use, or
utilization. These include simple counts, e.g., the average, per capita
number of physician visits per year, and the percent of the population
with at least one hospital stay during the year. These measures,
although frequently used, may not take into account differences in the
clinical need for care or health status of the population that is being
studied, differences in attitudes toward use of the medical care
system, differences in practice style of providers, and other factors.
With the recent availability of large, claims-and patient-level
data bases and advances in data handling, more sophisticated measures
of utilization that account for medical need can be studied for large
populations. Examples include measures of the percent of the elderly,
diabetic population receiving an annual eye exam, and the percent of
women in various cohorts, e.g., defined by age and medical need, who
have received a mammogram during the previous year.
Finally, access has been measured in other ways, some of which were
designed in attempts to measure the extent to which persons do not
achieve access to services and reasons why. Survey respondents, for
example, have been asked whether care was recently needed but not
obtained due to cost or other reasons (Schur and Franco 1999; Mueller,
Schur, Paramore 1998). Researchers have also studied satisfaction with
various components of the health care delivery system, arguing that
satisfaction is an important dimension of access. A battery of
questions that separately assess satisfaction with cost, quality, and
other dimensions of utilization are routinely asked as part of the
HCFA-sponsored Medicare Current Beneficiary Survey.
Factors that affect access to care--by affecting both whether any
care is actually received, and the level or intensity of services
received--include those that health services researchers refer to as
determinants of ability-to-pay, need, and availability. For the
Medicare beneficiary, these factors include: family income; whether the
beneficiary has insurance that supplements Medicare and the nature of
the supplemental coverage (e.g., benefits, cost-sharing); health
status; attitudes regarding relationships between personal health and
the health care delivery system; the supply of providers in the
beneficiary's community; practice style of community providers; and the
non-monetary ``costs'' of care, including travel time and expenses.
It is often argued that rural beneficiaries tend to be poorer,
which--by limiting ability to pay for care--reduces access. Relatively
more persons in non-metropolitan areas have individually purchased
supplemental coverage than in metropolitan areas where supplemental
coverage is relatively more likely to be subsidized by a previous
employer.\1\ Individually purchased coverage is often less generous
with respect to benefits than employer-subsidized coverage. Beneficiary
coverage of prescription drugs, for example, is more common in urban
than in rural areas because employer subsidized coverage is more common
and more likely to include a drug benefit (Mueller and Schur 2001).
Finally, the importance of travel and time costs in rural areas should
not be underestimated. The distance traveled to providers of care and
associated time and travel costs can be very high in rural areas, which
reduces access measures by reducing patient demand and utilization.
---------------------------------------------------------------------------
\1\ Supplemental coverage comes from a variety of sources. Private
supplemental, or Medigap coverage, is either purchased directly by the
beneficiary or is obtained through an employer. The term,
``supplemental coverage'' also includes Medicaid, for those Medicare
beneficiaries who are eligible.
---------------------------------------------------------------------------
Access to care among rural and urban Medicare beneficiaries is
comparable in many respects.
The good news is that access among rural and urban beneficiaries is
comparable in many respects. Access indicators for rural and urban
populations are similar for a number of dimensions of care. Rural
beneficiaries are as likely to see a physician during the year as their
urban counterparts (Mueller, Schoenman, Dorish 1999). Differences in
the average annual number of physician visits between urban and rural
beneficiaries exhibit some variation, depending on the definition of
``rural,'' are usually small (NCHS, 2000b; Mueller, Schoenman, Dorosh
1999; Coburn and Bolda 1999; Krauss, Machlin, Kass 1999; Clark and
Dellasega 1998).
Evidence from a recent analysis of Medicare claims submitted on
behalf of more than a quarter million program beneficiaries indicates
that rural residents are just as likely to receive much of the
necessary care received by urban beneficiaries (Hogan 2001). The author
of this analysis defines necessary care as care for which benefits are
expected to be substantial and outweigh associated risks, and care,
which if not provided, was viewed as inappropriate by a panel of
physician experts. For example, one necessary care indicator is whether
a mammogram is performed annually for patients with a history of breast
cancer. The author examines to what extent 46 necessary care components
are met in five different types of rural and in urban areas. With
respect to mammography, the exam was received by 69 percent of the
female population with a history of breast cancer in urban counties,
and by between 68 and 69 percent of the populations in rural counties,
depending on the extent of ``rurality.'' No important rural-versus-
urban differences were found for 27 of the 46 indicators studied, and
``for the typical indicator, most geographic areas differ by just a few
percentage points'' (Hogan 2001).\2\ Finally, rural access deficiencies
tend to be most severe in the least populated, most-rural of rural
areas.\3\
---------------------------------------------------------------------------
\2\ Other examples of necessary care indicators are:
gastrointestinal work-up for patients with iron deficiency anemia;
follow-up visits for hospitalization within one week of initial
diagnosis of unstable angina; chest x-ray within three months of
initial diagnosis of congestive heart failure; and visit within two
weeks following discharge of a patient hospitalized for depression.
\3\ Rural deficiencies are statistically significant and the
divergence from the corresponding urban value is 10 percent or greater
in the most-rural areas for 15 of the 19 indicators for which rural
deficiencies are observed.
---------------------------------------------------------------------------
Data also suggest that Medicare beneficiaries in rural and urban
areas are satisfied with certain dimensions of access to care. In 1996,
most beneficiaries (96 percent) indicated satisfaction with the overall
quality of care, and little variation existed within and across
residents of rural and urban counties (Mueller, Schoenman, Dorosh
1999). Contrary to expectations, rural beneficiaries are not less
satisfied with the availability of care on nights and weekends. While
fewer elderly in the most remote rural counties are satisfied with the
ease of commuting (92 percent in remote counties, versus 94 percent in
the largest metropolitan counties), the difference is small and not
statistically significant (Mueller, Schoenman, Dorosh 1999).
But rural beneficiaries face access problems.
The importance of rural deficiencies in access to necessary care
identified by Hogan (2001) should not be understated. For example,
rural populations are significantly less likely to receive timely EKGs
for congestive heart failure and transient ischemic attack, follow-up
care after hospitalizations for diabetes and gastrointestinal bleeding,
timely gall bladder removal for symptomatic gallstones, and screening
mammography (Hogan 2001). Once again, these deficiencies are for care
deemed medically necessary.
It is also important to observe that these access deficiencies are
most severe in the most rural of rural areas. Although this is not
surprising, given the lack of providers in these areas, this point is
very important to emphasize because much of the research on access to
date does not thoroughly address the extent to which access differences
vary within rural areas. Part of the reason is that national databases
that have traditionally been used to research access to care issues do
not have enough data on rural populations to generate reliable
estimates for the variety of rural settings that often get lumped
together under the label, ``non-metropolitan.''
Evidence from a number of other studies also indicates that rural
beneficiaries have less access to care than their urban counterparts.
Rural Medicare beneficiaries are less likely than urban beneficiaries
to: receive pap smears (Stearns, Slifkin, Edin 2000); have an emergency
department visit during the year (NCHS 2000a; Lishner, et al. 2000;
Miller, Holahan, Welch 1995); and use auxiliary home health services,
including physical therapy and medical social services (Sutton 2000;
Kenney, 1993). Rural residents are less likely to have access to
specialty physician services, and the average physician visit for rural
residents is less resource-intensive than for metropolitan area
beneficiaries (Sutton 2000; Miller, Holahan, Welch 1995).
How access to care that requires an inpatient stay varies between
rural and urban beneficiaries is unclear. Recent findings indicate that
the rural elderly are slightly more likely to be hospitalized during
the year and that their lengths of stay tend to be shorter than in
urban areas (NCHS 2000a; Schur and Franco 1999; Krauss, Machlin, Kass
1999). In thinking about what these findings say about access, it is
important to remember that use of hospitals is not a ``complete''
picture of the illness episode. Payment system incentives often
encourage shorter lengths of stay and discharge to a ``lower level'' of
care. Complete episodes of illness for the elderly often involve
skilled nursing care (either in a skilled nursing facility bed or at
home), home health services, or both after the patient's discharge for
an acute care hospital. We know that rural residents receive more
skilled nursing facility care (Coward, Netzer, Mullens 1996; Coward,
Horne, Peek 1995), that receipt of this care appears to vary indirectly
with the availability of home health services (Dubay, 1993) and
directly with the supply of skilled nursing facilities in rural areas
(Coburn and Bolda, 1999). While these findings are consistent with the
substitutability of certain kinds of services, currently available
access measures do not address the mix of care received during the
entire episode. Additional study on the use of post-acute care services
in rural versus urban areas is needed before we can say more about
access to care that requires an inpatient hospital stay.
Do these differences matter?
The evidence cited above suggests that rural residents have less
access to certain types of care than urban residents. These differences
are important for at least two reasons. First, these differences are of
at least someclinical significance. Although there is often
disagreement among medical experts in defining medical need and exact
prescriptions of what constitutes optimal levels of services for rural
versus urban populations, some of the observed differences are large
enough to be of concern to clinicians, e.g., the large differences in
access to types of services that clinicians have deemed necessary.
Second, these differences are important from an equity perspective.
A basic objective of the Medicare program is that beneficiaries--
regardless of geographic location--should have equitable access to
adequate medical care. Rural residents should have adequate access to
basic preventive, primary care, and emergency medical services. But as
access differentials do exist, especially for residents in the most
rural of rural areas, medical care expenditures by urban beneficiaries
are considerably greater than for rural beneficiaries. In 1996, per
capita personal health care expenditures for non-institutionalized
Medicare beneficiaries residing in metropolitan areas was $6,901 and
$5,901 for non-metropolitan beneficiaries (Liu et al. 2000).
Differences are even larger after controlling for differences in
supplemental coverage across beneficiaries. Per capita expenditures for
the populations of beneficiaries without any supplemental coverage--
that is, with only Medicare coverage--were $5,248 in metropolitan and
$3,860 in non-metropolitan areas (Liu et al. 2000). This difference, 37
percent, is an amount larger than could possibly be accounted for by
geographic differences in the costs of providing care.
It is important to emphasize that equity with respect to rural
versus urban residence does not necessarily require that per capita
program expenditures be equal. A variety of factors determine per
capita expenditures on medical care, just as a variety of factors
affect access. For example, expenditure differences reflect differences
in practice style and in the prices of care. By definition,
expenditures will be larger in areas with higher Medicare payment rates
and in areas where service mix is relatively resource-intensive. Thus,
because payments under the Medicare Fee Schedule have tended to be
lower in rural areas and service mix tends to be less resource-
intensive, per capita expenditures will be greater in urban areas. On
the other hand, removing access to care barriers faced by rural
residents will certainly increase rural expenditures relative to urban
expenditures, and improve equity of the Medicare program.
What policies might improve access among rural beneficiaries?
Several policy responses might be considered as we think about
Medicare reform and restructuring. First, policies that increase the
supply of health care resources in rural areas should help improve
access. At present, relative supplies of physicians and hospital
resources are larger in urban than in rural areas because markets--in
terms of numbers of people--are larger. The number of specialist
physicians per capita is larger in urban areas, so access to specialty
care is easier to obtain. A corollary is that certain ``fixed'' costs
will be lower in more-populated markets, so hospitals will be
relatively scarce and more costly to operate in rural areas. Personal
preferences of providers also constrain supply in some areas. Some
rural markets have difficulties attracting and retaining physicians and
other providers. Access indicators for these areas will differ from
measures for areas where effective supplies of providers are larger.
Supply in rural areas would be enhanced by workforce policies that
provide additional incentives for physicians to locate and maintain
practices in rural areas, and by payment policies that assist rural
providers and help ensure their financial viability in rural areas. An
example is the Rural Hospital Flexibility Program, which has granted
cost-based reimbursement to many of the smallest rural hospitals. This
program appears to be helping these facilities overcome financial
problems associated with low volume and allowing them to continue help
meet community needs.
Second, policies that improve rural beneficiaries' access to
expanded benefits should help improve access in rural areas. For
example, rural access will improve with a Medicare drug benefit so long
as rural residents can obtain coverage from a plan that provide drug
coverage. Currently, rural residents are less likely than their urban
counterparts to have this coverage because they have less access to
employer-sponsored private supplemental coverage, Medicare HMOs, and
Medicare+Choice plans that offer a drug benefit. Furthermore, rural
residents tend to be poorer and less able to afford an individually
purchased supplemental plan with drug coverage. For these reasons,
federal subsidization of a drug benefit based on income will likely
improve access in rural relative to urban areas.
To the extent that these policy approaches improve access in rural
areas, equity of the program from the rural perspective would improve
because real utilization in rural relative to urban areas would
increase. In the short run, other policy options that would reduce
rural inequity by reducing rural beneficiaries' share of program
expenses might be studied. One approach is to tie cost sharing to
program expenditures per capita. For example, the Medicare premium
could be reduced in lower cost (mainly rural) areas. Beneficiaries
would be expected to pay a premium equal to 25 percent of program
expenditures in rural areas of the state or region, for example.
Another possibility is to increase program payment rates to providers
under traditional Medicare in historically low-cost, under-served
areas. This might be accomplished, for example, either through the
current bonus payment mechanism that targets the bonus to physicians in
shortage-designated areas, or through the work component of the
Medicare Fee Schedule. The premium adjustment would benefit rural
beneficiaries directly, whereas adjustments in payment rates might
affect improvements in access over time by helping to direct physicians
to areas with the greatest need for physicians.
One final note. Although the primary focus of this statement is on
access to care among rural Medicare beneficiaries, it is important to
note that the Medicare program has been very successful at reducing
monetary barriers of access to care. Data indicate that access
differentials, like those noted above, also distinguish the rural non-
elderly from the urban non-elderly, but that monetary barriers are more
severe because of the lack of insurance among the non-elderly and that
this problem is relatively more severe in rural than in urban areas.
Because the Medicare population is relatively larger in rural than in
urban areas, policies designed to improve access to care among the
elderly are likely to strengthen the rural health infrastructure as a
whole, which in turn should improve access for the entire rural
population.
__________
References
Aday L.A. Andersen R. Fleming G.V. Health Care in the U.S. Beverly
Hills: Sage Publications. 1980.
Clark D. Dellasega C. Unmet Health Care Needs: Comparison of Rural
and Urban Senior Center Attendees. Journal of Gerontological Nursing;
1998; 24(12):24-33.
Coburn A. Bolda E. The Rural Elderly and Long-Term Care. In TC
Ricketts, III, (ed.), Rural Health in the United States. New York:
Oxford University Press. 1999.
Coward R. Horne C. Peek C. Predicting Nursing Home Admissions Among
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Across Six Years. The Gerontologist; 1995; 35(6):732-743.
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Chairwoman Johnson. Dr. Mueller.
Dr. Keith Mueller. Also Dr. Mueller.
Chairwoman Johnson. Oh, is it also Dr. Mueller.
STATEMENT OF KEITH J. MUELLER, PH.D., DIRECTOR, RURAL POLICY
RESEARCH INSTITUTE CENTER FOR RURAL HEALTH POLICY ANALYSIS,
UNIVERSITY OF NEBRASKA MEDICAL CENTER, OMAHA, NEBRASKA
Dr. Keith Mueller. Thank you, Madam Chairwoman.
The Rural Policy Research Institute Center for Rural Health
Policy Analysis that I direct focuses its attention, analysis
and research on the special circumstances of sustaining service
delivery in rural communities. Why then the focus on Medicare
policy?
The current Medicare policies and payment are creating
financial stress for many small rural hospitals. In 1998, the
total Medicare margin for rural hospitals was a negative 2.1
percent and in 1999 a negative 2.9 percent. In 1999, the small
rural hospitals under 50 beds who were not already part of some
special payment category experienced negative margins
aggregating the 5.6 percent negative, and 54\1/2\ percent of
them had negative margins.
How do we change that situation in current Medicare
policies? Medicare payment policies are designed for Medicare
to be an efficient payer of efficient providers, as you heard
earlier. Therefore, trying to address the needs, special needs,
of small rural providers requires adjustments to formulas to
try to increase the bottom line or maybe wrinkles in the
system, such as a low-volume cost adjuster or perhaps what I
call policies by exceptions, creating categories that would be
deemed eligible for cost-based reimbursement.
What are the results of that kind of an approach? One
result is imperfect targeting. As you have heard throughout
this morning's discussion already, each attempt to do this by
adjusting a formula creates a payment bonus, if you will, for a
broad category of providers, not necessarily those located in
those small, isolated communities most in need of assistance.
To reach them we end up reaching many. We also create a system
of administrative complexity, because one has to turn, then,
attention to, well, how do I adjust my cost reporting system to
comply with the new payment system intended to benefit me.
We also create a system with constantly changing
regulations and all of the time lines that are associated with
changing regulations, the publication of proposed rules, final
rules, then the implementation of those rules. That combination
of administrative complexity and constantly changing
regulations can overwhelm the systems that we have in place. It
certainly overwhelms those small rural hospitals like the
critical access hospital I visited recently in northern
California that is doing its best to take advantage of every
single opportunity to enhance its bottom line, but has to add
on administrative personnel in order to do that.
It also overwhelms our own government administrative
system, an issue that I know this Subcommittee has addressed in
the recent letter Chairwoman Johnson mentioned earlier to the
Health Care Financing Administration. Now, all of that can mean
cash flow crises for the small rural hospitals that can't
adjust quickly enough or have experienced regulations that
aren't adjusted quickly enough to deal with changes that we
intend to do in 1 month, but don't actually occur until 9 or 12
months later.
What is a better way out of this? What we are looking at
now at the RUPRI Center as a way of identifying communities
rather than focusing on providers. By using demographic,
economic and geographic data, we are working on identifying
those communities in which it would be nearly or absolutely
impossible to sustain service delivery based on operating
revenues alone, that some additional flow of dollars would be
needed in those communities.
If communities are identified, then we can look, as
Representative Stark said earlier, a holistic view of what is
the package of policies that we would use to help providers in
those communities: National policies, including payment
policies, but also including targeted technical assistance in
grant programs; State policies, including the same combination;
and local policies, including local tax revenues, local
foundations. We could be looking at other provider-based and
population-based programs to be serving those small
communities. If we engage in that kind of a dialog, we may do a
better job of sustaining those services in the rural
communities where today they are experiencing a great deal of
difficulty.
Thank you.
Chairwoman Johnson. Thank you very much, Dr. Mueller. I
guess is it Mueller, or is it Mueller?
Dr. Keith Mueller. Mueller.
[The prepared statement of Dr. Keith Mueller follows:]
STATEMENT OF KEITH J. MUELLER, PH.D., DIRECTOR, RURAL POLICY RESEARCH
INSTITUTE CENTER FOR RURAL HEALTH POLICY ANALYSIS, UNIVERSITY OF
NEBRASKA MEDICAL CENTER, OMAHA, NEBRASKA
Chairwoman Johnson, Representative Stark, members of the
Subcommittee, thank you for the opportunity to share some thinking
about reasons to change Medicare payment policies and a new framework
for making appropriate changes. The Rural Policy Research Institute is
committed to completing analysis that helps develop policies that
address the needs of people in the rural places where they live. This
reflects a belief that there are differences in place that ought to be
recognized in public policies, including Medicare, with policy choices
directed to the places where people live. I will conclude this
testimony describing a policy choice for Medicare payment policy that
does just that. Before reaching that conclusion I will use the current
conceptualization of policy to make three points: (1) health care
providers in small, remote rural communities continue to struggle to
survive financially; (2) the existing policy framework forces the use
of incremental changes to payment formulas that were not designed to
address the fundamental problem of delivering services where operating
revenue will not sustain services; and (3) the approach of payment
policies has led to accumulating technical changes that overwhelm the
systems used in payment.
THE CURRENT FINANCIAL STRUGGLE OF RURAL PROVIDERS
While not a perfect indicator of the financial condition of
providers in the small, remote communities that are the focus of my
testimony, the plight of small rural hospitals is a good proxy
indicator. In its March, 2001 report, the Medicare Payment Advisory
Commission (MedPAC) presented data showing that rural hospitals
experienced negative margins on their total Medicare business,-2.1% in
1998 and-2.9% in 1999 (Figure 5-8). The picture is especially bleak for
rural hospitals with fewer than 50 beds that are not included in any
special payment category, 54.5% of those institutions experienced
negative margins in 1999 (Table B-5), and their aggregated overall
Medicare margin was-5.6% (Table B-10). Losses generated in serving
Medicare beneficiaries might be offset by other sources, including
local taxes and foundations and/or payment from other insurers, but not
in all of hospitals in this group. In the aggregate, the total margin
reported by MedPAC for those hospitals in1999 was 2.1%, much less than
the overall 4.9% reported for all hospitals (Table B-15). In its
December 14, 2000 report of hospital margins, MedPAC presented data
reflecting improvement in hospital margins, but even so, 34% of
hospitals, mostly rural, had negative total Medicare margins.
The National Advisory Committee on Rural Health, on which I serve,
recently learned of the plight of small hospitals in some of the most
remote territory I have seen, in Northern California. The 72 rural
hospitals in that state averaged a-2.2% patient-operating margin in
1999, and 74% of them lost money on their operations in 1999. We
visited one rural hospital that recently converted to Critical Access
status, after being very near bankruptcy. Its most recent fiscal year
showed a slight loss on operations, but thanks to an aggressive plan to
expand services available in the community, it is on a path to
recovery, albeit with continued very narrow margins. Two images were
burned in my mind in that visit. First, that hospital is only barely
surviving financially, because even though it is doing everything a
good consultant would recommend, it suffers the natural disadvantage of
being located in a remote mountainous area. Second, as difficult as the
struggle is for that hospital, it is planning to affiliate or merge
with a neighboring (28 miles away in an area that can receive as much
as 20 feet of snow in the winter) hospital that is literally bankrupt.
This is a tale of difficulty about which aggregate data can only give
us hints. For me, this demonstrated the value of combining case study
data with aggregate data in our research, giving you a better sense of
the range of circumstances that exist in rural America.
The example of Northern California is repeated elsewhere in rural
areas--providers that are in precarious financial condition but finding
ways to continue providing services. The access to services they
provide today is assured only if they are able to continue to balance
operating losses with other sources of revenue, and doing everything
possible to reduce those losses.
CURRENT POLICY FRAMEWORK
Current policies present imperfect choices to address the needs of
rural communities. Medicare payment policies are designed, as
summarized by MedPAC, to create a system of efficient payment for
services delivered to beneficiaries, not to recognize needs caused by
environments in which providers cannot survive under financial models
assuming constant gains in efficiency. Yet those policies are the tools
available to address the needs of a unique group of providers serving
the small, remote rural communities. Therefore, proposals such as
setting a floor payment in the wage index, or equalizing the base
payment in the prospective payment system, appeal to the providers and
their associations who can calculate an improvement in revenue that may
``stop the bleeding.'' Other suggestions, such as adjusting payment
systems to increase per case payment in situations where the number of
cases are few (low-volume adjustment) are intended to bring the
operating margin closer to, if not in balance. But because there are
multiple payment streams to multiple providers in the same communities,
the incremental approach would need to apply to all of those payment
systems. This is the nature of the segmentation inherent in decisions
that track with the type of service and category of provider.
It should not be surprising that another approach to this problem
gains favor; that of creating a separate, cost-based payment system for
vulnerable providers. This would seem to be the most certain means of
meeting the needs of providers in target communities, since it would
neutralize the effect of Medicare payment on the financial condition of
those providers. However, two problems remain. First, even cost-based
payment may not be sufficient if ``allowable'' costs are not inclusive
and if there is no possibility to build up reserves needed to maintain
quality services. Second, the policy is still linked to providers,
which presents complications in trying to be sure the definition of
provider matches with communities that need those particular providers
(the concept of ``essential provider''). Despite these problems, this
approach would appear to be succeeding, for the most part, in the
designation of Critical Access Hospitals, 91% of which are located in
counties designated as Health Profession Shortage or Medically
Underserved Areas, 65% are the only hospital in their county, and
nearly 83% are located in counties with higher than state averages of
persons aged 65 or over.
Assuming the special financial needs of certain rural providers are
met, the remaining objective of payment systems fairness. No class of
provider should be disadvantaged vis a vis another class because of
differential payment. Any difference in payment must be related to a
difference in the actual cost of the specific service.
UNINTENDED CONSEQUENCES OF MULTIPLE, SEGMENTED TECHNICAL SOLUTIONS
The legacy of numerous incremental attempts to address the special
financial circumstances of rural providers,combined with repeated
efforts to refine and establish prospective payment systems, has
overwhelmed the capacity of administrative systems. The numbers of
providers in different categories is some indication of the complexity
being created: as of 1997 there were 1804 independent rural health
clinics (RHCs) and 1525 provider-based RHCs; the most recent PPS update
identified 165 Rural Referral Centers, 667 Sole Community Hospitals,
and 328 Medicare Dependent Hospitals. None of these classifications are
necessarily inappropriate, but the mere existence of separate provider
types necessitates at least different applications of payment systems
and regulations, if not completely separate regulations.
The inherent strain of multiple policies is most apparent when new
policies are enacted. For example, not all provisions of the Balanced
Budget Act of 1997 have been implemented through publication and
application of final rules. Issues have arisen in the implementation of
new systems to certify and reimburse Critical Access Hospitals,
resulting in legislative amendment in 1999 and 2000. Implementation of
prospective payment for outpatient services has been slow, affecting
timely completion of cost reports and therefore delaying fiscal year
end reconciliation, and forcing new policies based on cost report data
to start late or use old data.
Frequent and multiple ``fixes'' to payment systems can easily
outpace the ability to use appropriate data, both for developing
systems and for measuring their impacts. The delays in cost report data
described earlier means wage data (including occupational mix) used in
prospective payment formulas are reliable only as of some years prior
to the payment. Recent increases in wage scales and mix of employees
(due to changes in medical practice and/or new regulations) will not be
reflected in the payment.
Delays in implementing new systems might be only bumps in the road
were it not for the effects on the small, financially vulnerable
providers that are the focus of this testimony. A seven month delay in
reconciliation based on the year-end cost report could result in a
serious, even crippling, cash flow problem for a provider expecting a
positive result. Problems in implementing legislation that initially
does not include the specific authority intended (for example, cost-
based payment for lab services provided by CAHs) can be resolved, and
retroactively (as was the case in CAH lab payment). But, again, that
means a delay in receiving expected revenue.
The resolution to this pattern of ever-increasing complexity is not
``administrative simplification,'' since that only makes each
regulation simpler and does not slow down the increase in volume every
time a payment system is altered. A completely different approach would
offer a better solution.
PAYMENT BASED ON COMMUNITY
With access to locally-based services as an objective of public
policy, a new framework would identify those communities within which
any provider would be unable to sustain services based on operating
revenue. The RUPRI Center is currently developing a means of
designating ``vulnerable communities'' as an alternative to designating
specific types of health care providers. Our aspiration is to use
information that can be obtained from Census data and other public
sources in a formula that accounts for low expected patient-based
revenue. We have begun by mapping areas based on population
aggregation, to at least 1500 persons in a ``community'' (town and
surrounding census tracts). Within each community, in addition to total
population, variables expected to be related to operating revenues are:
household income, percent of population enrolled in Medicaid, percent
of population enrolled in Medicare, percent of the population at or
below federal poverty level in income; percent of workforce unemployed,
and population per square mile. Population per square mile is one
measure of isolation, but physical terrain will need to be
operationalized and either incorporated into a formula or used as
second-level criteria.
By building the definition of community using census tracts rather
than county boundaries, this approach can deal with the problems of
having small isolated communities within very large counties that
include areas that are well-served. This is a problem in western
counties, like the ones the National Advisory Committee on Rural Health
toured last week. We are currently testing the early phases of our
modeling with data regarding communities in Nebraska, and so far our
thinking passes the ``face validity test'' of identifying communities
we know have difficulty recruiting and retaining health care
practitioners and sustaining institutional providers.
Once communities are identified as ``vulnerable'' policies devised
at the federal, state, and local levels of government can be used to
maintain the economic viability of providers based in those
communities. For the federal government the policies can be a
combination of payment from Medicare and availability of grant funding
for special needs such as capital investment or conversion of
information systems to develop new systems of quality improvement. From
state governments the policies can include special payment from
Medicaid and direct financial assistance. Local policies can include
access to a tax base (which may be broader than the single community),
direct assistance, and/or help in organizing community-based
foundations.
Hospital financial data indicate, to at least some degree,
communities who are self-identified as ``vulnerable.'' Small rural
hospitals (under 50 beds) with substantial income from government
subsidies and non-patient revenue are financing care through these
means. Of the types of hospitals as classified by MedPAC, the category
with the highest percent gain from ``other government payers and
subsidies'' are the small rural hospitals. For those hospitals, a loss
of non-patient revenues would have resulted in net losses in 1999
(Table B-15). Of course, those are aggregate numbers, and the reason to
develop a community-based policy is target resources effectively within
clusters of hospitals, or any other health care providers.
If this or some other means of identifying communities is found to
be effective, non-payment policies, including special grant programs
and flexibility in meeting conditions of participation, can be targeted
to specific places. The same is true for grant programs, including
technical assistance and promoting innovative means of meeting local
needs, such as developing networks.
I am suggesting a framework for considering policies targeted to
issues of access to care in rural areas. The focus of this framework is
place, not provider. Short of finding acceptable means of imposing this
framework, policies targeting providers should be based on underlying
assumptions about the communities they serve.
Chairwoman Johnson. OK. Two questions, Dr. Mueller on my
right. Do you support the wage base, just the arbitrary
increase in the wage adjustment for rural hospitals?
Dr. Keith Mueller. You are speaking about creating the
floor payment of .9 or whatever it might be?
Chairwoman Johnson. Yeah.
Dr. Keith Mueller. That would be inconsistent with the idea
of looking at a more holistic change. So, no, in an analytical
sense, no, that can't be supported.
Chairwoman Johnson. I do think your comments about a more
holistic approach are very, very interesting. You heard the
questions that I asked Mr. Hackbarth earlier, and any comments
you may have in looking at those hundred-bed or, you know, the
different categories of rural hospitals, which does go to the
point you are raising about let's look at the community, would
certainly be of interest to us. I would remark that it isn't
just the small hospitals that are now having cash flow crises
because the banking institutions are seeing the health
providers as poor risks, and even larger hospitals are having
great difficulty if the payment system breaks down, which it is
now quite frequently.
I did want to just ask Dr. Mueller in the center, your
comment about reducing premiums where costs are lower and the
barrier that income places on access to care in rural areas, is
that an idea that you have developed to any degree?
Dr. Curt Mueller. There is a considerable amount of health
services research which indicates that income and insurance are
significant determinants of access to care, both among--well,
among the population in general, but also among Medicare
beneficiaries.
Chairwoman Johnson. Certainly access, those with Medigap
insurance that covers much of the co-pay and deductible
responsibility of seniors does make access much easier, and it
is more difficult--is it difficult for seniors in rural areas
to get because it is not available or because they can't afford
it?
Dr. Curt Mueller. My suspicion is that, well, fewer rural
beneficiaries have Medicare supplemental coverage than
beneficiaries that live in urban areas, and it is actually a
combination of both. You can either obtain privately purchased
supplemental coverage, which I think in rural areas it is about
the percentage covered with privately purchased. It is about
the same as in urban areas. The big differences, though, are
that employer-subsidized supplemental insurance is much more
common in urban areas than in rural areas.
Chairwoman Johnson. And have you given any thought to going
to a single deductible, a more sort of modern structure of
Medicare, and whether that would increase access in rural
areas?
Dr. Curt Mueller. A single deductible?
Chairwoman Johnson. Yes.
Dr. Curt Mueller. Well, there has been a lot of interest in
reforming the nature of supplemental insurance coverage. Right
now the supplemental insurance--some of the supplemental
insurance plans provide first dollar coverage, which has been
criticized as encouraging more use than might otherwise be
appropriate.
Chairwoman Johnson. I guess let me take it from a little
different angle. MedPAC testified that rural beneficiary cost-
sharing is higher, and you have testified that costs are an
impediment to access. Could you walk us through policies--and
you can all contribute to this if you want. What policies
contribute to high cost-sharing, and what are the implications
for cross-subsidies from the rural elderly to the urban
elderly? Is there any difference? Is the urban elderly person
with no Medigap insurance in exactly the same position as the
rural elderly person with no Medigap insurance?
Dr. Curt Mueller. No. Expenditures for the urban elderly
with no Medigap, it is on a per capita basis, total
expenditures are higher. In fact, in 1996, one of the
statistics in my statement is that among those with no
supplemental insurance at all, the urban expenditure per capita
is 37 percent higher than in rural areas.
Chairwoman Johnson. For the same income elderly?
Dr. Curt Mueller. Well, for persons with Medicare only,
with no supplemental coverage. I don't know what their income
level is. My suspicion is it is lower since in general incomes
tend to be lower in rural areas.
Chairwoman Johnson. It would be helpful if you could look
at that for us, because while certainly incomes tend to be
lower in rural areas, the group that have no supplemental in
the cities are often just above the Medicaid income levels
also. So, I don't know whether they are getting more services
because the urban institutions are more accustomed to providing
services for uncompensated care, or they have access to a
community health center that can provide those services at an
income-related cost.
So what I hear you saying, and I assume that you all agree
on this, is that we don't know much about why seniors with no
auxiliary insurance experience a 37 percent higher utilization
rate than rural seniors. So we don't know how much of that is
lack of availability of services and how much of that is
availability of services at lower cost in the urban structure.
Dr. Curt Mueller. Yes. It is important to emphasize you
raise a very good point, that there are a number of factors
that could explain parts of that difference. Income is
certainly one of them.
Chairwoman Johnson. Congresswoman Thurman.
Mrs. Thurman. Thank you, Madam Chairman.
Dr. Curt Mueller, something else in your testimony,
especially with the debate that is going on in Congress right
now, that was kind of alarming to me, and I am just--maybe you
can expand on it. Maybe I shouldn't ask this question because I
may not know the answer, but you talked about the idea that
Federal subsidization of drug benefit based on income will
likely improve access in rural relative to urban areas. I mean,
there is a large--high debate going on here about whether it
should be under a helping hand or rather it should just be a
Medicaid benefit, but just based on this exchange, with a lack
of ability for insurance, the lack of Medicare+Choice programs,
the lack of, you know, all of these things that rural areas
can't get, why would you just do it to low-income and not to
look at that whole population out there?
Dr. Curt Mueller. I wouldn't necessarily limit it just to
low-income Medicare beneficiaries, but that certainly is one of
the options that is being considered. I personally--my personal
view is that it should be offered to all Medicare
beneficiaries.
Mrs. Thurman. Thank you.
And Dr. Keith Mueller then, let me--you know, we sometimes
go into our districts, we bring our staffs, we have them go
through the hospital, situation very similar to what you did in
your study, and I was interested in your comment particularly
on the administrative part of it because you talked about the
lack of administration to handle some of the complicated
issues, or even keeping up with what is going on. What we found
in a small rural area of ours, there was about three people in
the whole--two were consultants and one was actually staff--in
trying to do this.
What I am curious about is that as you know, our Chairwoman
and Mr. Stark submitted to HCFA a letter that looked at some
administrative procedures that could be put in place to try to
get rid of some of this paperwork and cumbersome issues, and I
am curious to know if you have had an opportunity to look at
that, and if so, do you have any comment; and if not, I would
love to give you a copy of it so that you could have an
opportunity to review it and see if in any way that helps us in
the rural areas.
Dr. Keith Mueller. No. I have not had the opportunity to
look at that letter and would welcome the opportunity to do so.
I would like to comment, though, that it is a--when you talk
about the administrative complexity and the burden that it
imposes, it is a combination of two factors. One that you
mentioned is trying to simplify the administrative rules that
we have in place now and procedures that we have in place, but
the other that I was also addressing in my testimony is that by
trying to continue to resolve issues of payment and sustaining
services by tweaking and changing payment formulas, we are
structurally contributing to administrative complexities. So
that is not under the control just of the administrative agency
itself.
Mrs. Thurman. Dr. Dalton, on the last page, on page 5 in
your very last bullet point, you talk about DSH adjustments and
saying that that would be certainly something that would be
helpful to the rural health community. I understood that. But
particularly after MedPAC testified, you actually talk about
targeted help in those urban or those rural areas. Can you give
us some idea of how you would target so that it didn't become
unbalanced then or imbalanced with the rest of the community in
the rural health? I am just interested in what kinds of things
you would look at to make those targeted areas receive
additional dollars.
Dr. Dalton. Well, with respect to the disproportionate
share expansion, I think by itself it targets it appropriately
because it is related to indigent care, or should be. My
thought about offering a cost floor was that this sort of
arrangement would automatically target hospitals in bad years
that are having difficulty if they qualify as an essential
provider on the assumption that that definition of essential
provider is something like Dr. Mueller's community-based
characteristic. It is a community at risk for one reason or
another.
Not all hospitals in these communities at risk need the
help. My thought was that a cost floor is able automatically to
target the hospitals to help only those hospitals that do. We
have also noticed that these very small hospitals are very--
their financial position is unstable. Some years they actually
can do all right on a prospective payment, and then in other
years they won't. It usually has to do with rapid changes in
utilization. When you only have 10 beds, the difference between
6 and 12 patients is rather large. The advantage of a cost
floor would be that in a bad year it is there to help you, but
in a good year you don't need any--you might not need any extra
money, and in a good year you might be able to accumulate some
surplus, put it away to your reserve, and be able to use that
for the purposes to which all organizations need their
reserves.
Mrs. Thurman. Thank you.
Chairwoman Johnson. Actually that is a very interesting
point you made, Dr. Dalton, that even if we create new
categories within those categories, there may not be a--sort of
in a sense a stable demand. So what you are really suggesting
is that we need--because we have tried to do this with sole
providers, and we have categories that have gone directly to
the issue we are discussing here, and what you are really
suggesting is that we need a sort of a loose category through
which hospitals can be heard.
And we know this flies in the face of Dr. Keith Mueller's
comments about the need for stability and predictability and
simplicity, but I don't know how we match this need of small
rural providers for exceptional consideration and communities
that need an exceptional view with the need for the system to
stop churning change.
I did want to ask any of you if you know how the small
providers deal with some of the--particularly the small
hospitals--some of the extraordinarily complex changes we have
sent down. I had one person who had a lot of experience in the
rural areas say they just put the pile of the regulations in
the corner, and, you know, when there is a hitch in their
payment system, somebody tries to explain to them what the
problem is, but they literally don't have the technical
capability to review all that stuff, nor the time, nor the
resources, nor the programs.
What percentage of the situation--of the facilities deal
with some of these--at least some of these administrative
directives that way, or do they take everything we say to
heart?
Dr. Keith Mueller. The percentage that deal with it in the
way you describe, Ms. Johnson, is probably higher than we would
like to admit. A lot of the small rural hospitals, though, turn
to either their association at the State level, especially if
it is responsive in particular to rural hospitals, or to
consultants, the accounting firm that may handle their books,
other consultants that come out. That kind of technical
assistance, though, doesn't take care of how do I maintain my
records on a daily basis so that when the accountant comes in,
the records are ready for he or she to deal with appropriately.
And I think that is the level at which we have a real problem.
Chairwoman Johnson. You will notice in the letter that
Karen referred to is that one of the recommendations is that we
be able to provide technical assistance. We do that in other
sectors of the economy, and if you will look at that section,
all three of you, and see if you have any suggestions for us,
we will be interested in that.
The goal is provide better tools to the small providers so
that they aren't just trying to make it up as they go along,
both in terms of technical advice on equipment and technical
advice on systems management.
Mr. English. No questions, OK.
The last point I want to raise that--incidentally, I
appreciate how detailed your testimony is and how much good
information it does give us, and while we can't bring all of
that out at the hearing, it will be very useful to us.
On this last issue about the prescription drug bill, you
know, the access--and that is why anything you can do to help
us shed light on how much of the utilization rate, the very
utilization rate between the urban uninsured that is to be on
Medicare and the rural uninsured be on Medicare, would be very
helpful, because if the barrier is primarily cost and the lack
of available, you know, sort of subsidized facilities like
community health centers, we need to know that. But also the
prescription drug bills, and this is a nonpartisan statement,
all of the prescription drug bills on the table involve an
additional premium, and 50 percent of the cost of
prescriptions. Now, they also are almost likely to be involved
this year because of the increased projections in costs for a
deductible. So how useful is this going to be to these rural
seniors? Again, how do we look at that from a sort of community
systems point of view?
We need as much information as you can get us about the
access issue, and try to break it down a little bit more and
think it through as to whether we can even deal with it through
a reimbursement mechanism that is institution-specific and
cost-specific, or whether we really need to try to find a way
to look more holistically.
Well, thank you very much for your testimony here and for
the thought and care you put into writing it, and if you have
follow-up information you want to provide us with, we are
always happy to receive it.
Chairwoman Johnson. Thank you very much. The hearing is
adjourned.
[Whereupon, at 11:55 a.m., the hearing was adjourned.]
[Submissions for the record follows:]
STATEMENT OF THE AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR THE
AGING
The American Association of Homes and Services for the Aging
(AAHSA) appreciates the opportunity to submit this statement for the
record of the Subcommittee's hearing on June 12, 2001 on special issues
confronting health care providers and consumers in rural areas.
AAHSA is a national organization whose more than 5,600 not-for-
profit providers serve over 1,000,000 individuals on a daily basis.
Approximately seventy-five percent of AAHSA members are affiliated with
religious organizations; others are sponsored by private foundations,
fraternal organizations, government agencies, and community groups. Our
members include not only nursing facilities, but also independent
senior housing, assisted living, continuing care retirement
communities, and providers of home health care, adult day care, respite
care, meals on wheels, and other services. AAHSA members are
characterized by long-standing ties to their communities and a firm
commitment to quality.
Providing health care and social services in rural areas present
special challenges. According to the Medicare Payment Advisory
Commission (MedPAC)'s recent study, ``Medicare in Rural America'',
rural communities share several factors that may affect the supply of
medical services to their residents: small and disproportionately older
populations, relatively low incomes and less health insurance coverage,
physical isolation, and weak or restrictive state health policies.\1\
The report also noted that these problems are more severe for providers
and consumers in rural areas that are farthest from an urban area.
---------------------------------------------------------------------------
\1\ Medicare Payment Advisory Commission. Report to Congress:
Medicare in Rural America. June 2001, p. 8.
---------------------------------------------------------------------------
The rural populations AAHSA members serve are dispersed over large
geographic areas, making travel time a significant factor in home- and
community-based services. For example, one home care agency in a rural
areaof New York State is the only health care provider within 5,000
square miles. Its employees routinely travel a total of 7,000 miles
every day to serve its widely scattered clientele. The recent
escalation in gasoline prices has added enormously to the agency's cost
of providing service, but these costs are not reflected in the
reimbursement the agency receives, since the payment is based on the
projected cost of a one-hour visit.
Rural providers have difficulty attracting health professionals to
serve in non-urban settings. In addition, local populations from which
rural providers can recruit staff are much smaller than in urban areas,
making it that much more difficult for them to recruit and retain the
staff they need to provide high-quality care. Health care facilities in
rural areas tend to be smaller than average and have less access to
sophisticated computer equipment, which makes it more difficult for
them to comply with rapidly multiplying federal regulations. Medicare
policies do not always give adequate consideration to these factors,
making it more difficult for rural providers to meet the needs of their
elderly residents and clients.
An overriding problem for health care providers in rural areas is
that they simply do not have the volume of patients that can make
prospective payment systems work. Prospective payment systems are based
on the assumption that higher-than-average cost cases will be balanced
by those costing less than the average, allowing the provider to at
least break even. When a provider serves a low volume of patients,
however, a few costly cases can completely overwhelm the provider's
financial situation. In more urban areas, some small health care
providers have been able to consolidate with other facilities in order
to achieve economies of scale to cope with prospective payment systems.
Rural health care providers most often do not have this option, since
they frequently are the only health care facility in their region. If
they close their doors, consumers have no alternative source of health
care.
Another factor to consider is that a rural health care provider
frequently is not only the sole source of health care for consumers in
the area, but often is the largest employer as well. Residents of rural
areas typically have few employment alternatives. The closure of a
local health care facility, besides throwing many people out of work,
can have a major impact on other local businesses and on the local tax
base.
AAHSA supports legislation that has been introduced in the House
and Senate to resolve Medicare payment inequities toward hospitals in
rural areas. However, these measures do not take into account the
problems that also face rural nursing homes and home care providers.
AAHSA recommends the following additional initiatives to enhance long-
term care providers' ability to serve consumers in rural areas:
Eliminate the impending 15% cut in Medicare spending on home
health: Home health care fills an especially important place in rural
areas, where it often is extremely difficult for consumers with
disabilities to access other forms of health care. In addition, the
MedPAC report on ``Medicare in Rural America'' points out two special
challenges facing rural home care providers: travel time and low
volume. MedPAC noted that ``Traveling to serve sparse or remote
populations may increase the costs of providing services to rural
beneficiaries.'' In addition, ``Because rural HHAs generally deliver
fewer visits than their urban counterparts, their low volume could lead
to higher per episode costs.'' The report went on to recommend that CMS
study further the impact of the prospective payment system on rural
home care providers.\2\
---------------------------------------------------------------------------
\2\ Ibid, p. 107-110
---------------------------------------------------------------------------
Home health agencies are trying to recover from the financial
devastation of the Balanced Budget Act's interim payment system. The
new prospective payment system has solved some reimbursement problems.
However, an additional 15 percent reduction would cause many more home
health agencies to close, which will cause serious access and
availability problems for Medicare beneficiaries. Furthermore, the
BBA's restrictions on eligibility for Medicare-covered home health
services have caused total Medicare spending on home health to fall far
below the levels that were projected in 1997, making the additional 15%
cut unnecessary. The FY2002 budget resolution passed by Congress sets
aside funding availability for the elimination of this spending cut,
and AAHSA urges passage of the necessary legislation
Incentives for recruitment and retention of staff: While staffing
is a serious problem throughout the long-term care field, it is
particularly urgent in rural areas, which have smaller and generally
less-educated labor pools. AAHSA strongly supports legislation that has
been introduced by Rep. Lois Capps, Senator John Kerry, and Senator Tim
Hutchinson to provide a variety of incentives for the recruitment,
training, and retention of nursing staff at all levels. These measures
include a new program of scholarships for individuals to obtain nursing
education in exchange for serving for at least two years in areas with
nursing shortages, an enhanced federal Medicaid match for nursing
homes' cost of training certified nursing assistants, and grants to
meet the costs of child care and transportation for nursing students.
It is particularly important that these bills cover staff recruitment,
training, and retention for long-term care providers as well as for
hospitals and that they provide these incentives for certified nursing
assistants and other nursing staff as well as for registered nurses.
This legislation would go a long way toward solving the health care
staffing crisis, and we urge its passage by Congress.
Single task workers: Because of the difficulty of hiring sufficient
numbers of certified nursing assistants, nursing homes in many areas
maximized the efficiency of their staffs by training non-nursing staff
to help residents with specific tasks such as eating and drinking. Last
year, the Health Care Financing Administration, now CMS, notified
nursing homes that they would be cited for care deficiencies if they
continued this practice. Current law defines a nursing assistant as
``any individual providing nursing or nursing-related services to
residents in a skilled nursing facility or a nursing facility.'' The
statute requires that nurse aides successfully complete a training and
competency evaluation program. The law does not define which specific
tasks are considered to be ``nursing or nursing-related''; CMS has
determined, under its State Operations Manual, which tasks should be so
designated. According to the State Operations Manual, assisting
residents with eating or drinking is considered to be a nursing-related
task.
In the nursing home environment, many employees who are neither
nurse aides nor licensed health professionals also have frequent and
regular contact with residents. Permitting these individuals to be
trained to help residents at mealtime can offer partial relief to the
nurse aide shortage and provide more individual attention to residents.
Allowing specially trained non-nursing staff to assist residents who
may need only a little help frees certified nursing assistants to help
other residents who have more complex needs. This kind of relief is
especially important in rural areas, where it is particularly difficult
for nursing homes to hire sufficient staff.
AAHSA strongly supports legislation that has been introduced by
Rep. Paul Ryan and Senator Herb Kohl to permit nursing facilities to
train non-nursing personnel to assist residents with eating and
drinking. These employees would augment, but not replace existing staff
and would be trained specifically to help with eating and drinking
without having to complete the full nurse aide training and competency
evaluation program. The interdisciplinary team responsible for the care
of the resident would determine resident appropriateness and employee
competence and ability to perform these tasks, and the training
programs would be reviewed and approved by the state regulatory
authority.
Need for regulatory relief: Regulatory requirements that are costly
for most long-term care providers become almost insurmountable burdens
for providers in rural areas. For example, nursing homes now are
supposed to have one full-time compliance officer to ensure that the
facility is not violating Medicare payment policies and another full-
time employee to monitor the facility's compliance with the privacy
requirements under the Health Insurance Portability and Accountability
Act of 1996. For small facilities with few administrative staff,
devoting two full-time positions to this kind of regulatory compliance
is an inefficient use of scarce resources. AAHSA strongly supports the
work your subcommittee is doing this year to review the regulatory
requirements for health care providers and modify or eliminate those
that are non-essential.
Another example of unnecessary regulation that is particularly
burdensome for rural nursing homes is the requirement in Section 941 of
the Benefits Improvement and Protection Act, that nursing facilities
post daily for each shift the current number of licensed and unlicensed
nursing staff, in a uniform manner to be designated by HCFA and in a
clearly visible place. Again, for nursing homes that have few
administrative staff, little computerization, and a shortage of nursing
staff, this requirement will take resources away from essential patient
care. Furthermore, posting of staffing levels is of little value and is
potentially misleading to consumers, since without any reference to the
acuity of the residents being served, or an established criterion for
appropriate staffing levels based on resident acuity, simple staff
numbers are meaningless. AAHSA urges the repeal of this provision.
Regulatory relief for ``swing beds'': Current law allows small,
rural hospitals to enter into agreements under which the hospital can
use its beds to provide either acute or skilled nursing care, according
to patients' needs. A hospital bed becomes a swing bed when a patient
no longer needs acute care but still needs subacute care. Rather than
transferring the patient to a different facility, the hospital keeps
the patient and is reimbursed at the subacute level. Swing beds may
provide access to subacute care for Medicare beneficiaries in many
rural areas where there are few other providers of this kind of care.
Swing bed patients typically have relatively short stays, averaging
approximately nine days.
CMS is beginning to implement provisions of the Balanced Budget Act
that will bring swing beds under the skilled nursing facility
prospective payment system (SNF PPS). In turn, the SNF PPS is based on
a full assessment of a skilled nursing facility resident's condition
that is done upon entry and at specific intervals thereafter, recorded
on the minimum data set (MDS). CMS has determined that the assessment
for payment purposes must be done according to the full MDS, rather
than just according to the specific treatments for which reimbursement
is claimed.
The full MDS is a detailed and time-consuming process, as it should
be. The current requirements are such that skilled nursing facilities
with average Medicare volume are forced, as a practical matter, to
dedicate the equivalent of a full-time RN to completing assessments
rather than providing care if the facilities are to get all of the
paperwork completed and submitted on the time schedule required. This
requirement is particularly onerous for rural hospitals, which have
little experience with OBRA requirements for skilled nursing facilities
and which have limited administrative and nursing staffs. It also makes
little sense to require rural hospitals to complete the full MDS
process for patients who generally will occupy a swing bed for only a
few days.
Last year's Medicare and Medicaid Benefits Improvement and
Protection Act (BIPA) exempted critical care facilities in rural areas
from the requirements of the prospective payment system. AAHSA
recommends that a similar approach be taken toward swing beds in rural
hospitals, exempting them from completing the full MDS and from the
skilled nursing facility prospective payment system. Hospitals could
then be reimbursed for care given to swing bed patients according to
the current cost-related basis, which combines a calculated rate and a
retrospective component.
Nursing assistant training lockout: Medicare and Medicaid prohibit
nurse aide training by or in a nursing facility if the facility within
the last two years has: (1) operated under a (staffing) waiver; (2) has
been subject to an extended or partial extended survey; (3) has been
assessed a civil money penalty of $5000 or more; or (4) has been
subject to certain remedies (i.e., denial of payment for new
admissions, or temporary management, termination of provider agreement
due to a finding of immediate jeopardy, and/or closure of a facility,
transfer of residents, or both). These provisions are severely
restricting the ability of nursing facilities to train nurse aides and
have proved counterproductive to improving quality of care.
There is little argument for approval of a nurse aide training
program by a facility that is providing substandard quality of care.
However, the prohibition on training once compliance has been achieved
and demonstrated is completely arbitrary and poses problems for
providers and residents alike. The two-year duration of the nurse aide
training ``lock-out'' severely impedes the facility's ability to
recruit and retain adequate and qualified staff, and to assure
provision of quality care.
Opportunities to access alternative training programs are
frequently limited and many facilities, even after achieving and
demonstrating compliance, find it difficult, if not impossible, to
secure training for their aides. This problem is particularly severe in
rural areas, where the nearest alternative training site may be at a
great distance from the facility. The end result can be either new
compromises to quality of care or a recurrence of the problems that
caused the disqualification from training. The effect of this
particular sanction is counterproductive to the improvement of quality,
and to the intent of the law that facilities achieve and maintain
sustained compliance.
AAHSA urges the elimination of the present two-year prohibition on
nurse aide training by or in nursing facilities that are found to be
out of compliance with certain federal long term care requirements
[Section(s) 1819 and 1919(f)(2)(B)(iii)(I)(b) of the Social Security
Act]. Once facilities have corrected their deficiencies and
demonstrated compliance, they should be permitted to resume their
nurse-aide training programs.
Medicare wage index: Hospitals in rural areas have the option of
using the urban wage index in filing reimbursement claims if they can
show that they must compete with urban areas in recruiting staff. This
option should be extended to rural nursing homes, which also must often
compete with urban facilities in recruiting staff.
Telemedicine in long-term care: Telemedicine is a promising new use
of technology that holds the potential for greatly improving access to
quality health care in rural areas. Section 223 of last year's Benefit
Improvement and Protection Act, which expanded Medicare payments for
telehealth services provided to rural beneficiaries, did not authorize
nursing homes as potential sites, although it did give CMS two years to
study additional settings for telehealth services. Nursing homes
located in rural areas are often central elements of their communities,
familiar to and easily accessed by beneficiaries, and providing ready
access to skilled professional services. Including nursing homes as
originating sites for telehealth services will benefit not only the
community at large, but also the frail elderly population residing in
these facilities by improving the breadth and quality of medical
services potentially available to them. AAHSA recommends that nursing
homes be authorized as telemedicine sites without the additional delay
of waiting for the CMS study.
Conclusion: Medicare regulations and payment policies that are
problematic for long-term care providers generally can become almost
insurmountable for rural providers, who must cope with the special
challenges of small patient populations and labor pools and lengthy
travel times to serve home care clients. AAHSA looks forward to working
with the subcommittee on reforms that will provide essential relief to
rural nursing homes and home care agencies and enhance their ability to
give the highest-quality health care.
STATEMENT OF THE FEDERATION OF AMERICAN HOSPITALS
Madam Chairwoman,
The Federation of American Hospitals would like to thank Chairwoman
Nancy Johnson (R-CT), Ranking Member Pete Stark (D-CA), and other
Members of the Subcommittee for their attention to rural health care.
The House Ways and Means Committee, under your leadership, has remained
committed to the needs of rural providers--recently helping to mitigate
a number of rural reimbursement problems through the Balanced Budget
Refinement Act of 1999 (BBRA) and the Medicare, Medicaid and SCHIP
Benefits Improvements and Protection Act of 2000 (BIPA).
The Federation of American Hospitals (FAH) represents nearly 1,700
privately owned and managed community hospitals across the United
States, including over 400 rural facilities. On a daily basis, our
doctors and nurses face the daunting task of trying to provide the best
and most affordable care to rural communities--all with fewer dollars.
This is not a recent development. The communities in which we serve
have historically suffered under inequitable Medicare reimbursement
rates.
Rural hospitals serve a critical role in the health and well-being
of our nation's seniors. With nearly one-in-four Medicare beneficiaries
living in rural America, the Federation believes it is vital that
Congress more fully understand the unique challenges that these
hospitals face. Specifically, hospitals in rural communities: (1) tend
to have higher per unit costs; (2) are more dependent on Medicare
revenues than are urban hospitals; (3) are often the only provider of
the services they render (i.e., when such facilities close, it can
affect beneficiaries for miles in all directions); and (4) often have
difficulty recruiting physicians and nurses as well as maintaining
their patient base.
As you will hear from the Medicare Payment Advisory Commission
(MedPAC) today, despite modest legislative adjustments over the past
several years, Medicare continues to reimburse rural America far below
their urban counterparts. This is despite the fact that rural providers
are expected to provide the same standard and level of quality care to
their community. The Federation is delighted that MedPAC has made some
proactive recommendations, some of which would certainly improve the
delivery of care in rural America. However, FAH is concerned that some
of these provisions continue to remain too targeted.
In fact, the Federation believes that Congress should look at
broader solutions. In particular, we would like to see as part of any
rural hospital legislation enacted this year: (1) full Medicare
Disproportionate Share (DSH) equity and (2) a Medicare Hospital base
payment increase, both with new monies.
Medicare DSH payments are distributed through a hospital-specific
percentage add-on applied to the basic DRG payments rates. The intent
of these payments is to reimburse facilities for the high cost of
treating poor patients. BIPA made some important changes to Medicare
DSH payments; most notably, it extended the eligibility threshold of
15% low income share (previously enjoyed by only urban hospitals with
100 or more beds), and increased the DSH cap for rural or small urban
to 5.25%
While the Federation appreciates Congress' efforts last year to
address the issue of Medicare DSH equity, we would like Congress to
take another step forward in correcting this inequity and ensure full
Medicare DSH equity. In short, a rural hospital or small urban
currently receives a Medicare DSH add-on to each DRG payment--the add-
on is limited under current law to 5.25% above the DRG. FAH believes
that the 5.25% is arbitrary and artificial, and if new money were to be
used, the Federation would support eliminating the cap altogether.
The Federation would also like to see Congress once and for all
address the Medicare base payment rate--an unequal and inequitable
payment difference with no justification in policy. Medicare payment
for inpatient care in hospitals is determined by a formula based on a
dollar amount known as the base payment. That amount is multiplied by
the DRG to reflect the costs of the treatment the patient receives for
a particular diagnosis, and adjusted by the relevant wage index, DSH,
IME, transfer, etc. There are currently two separate base rates for
inpatient payments--one for large urban areas with a population greater
than one million ($4,197), and a second encompassing rural and urban
areas less than one million ($4,130). The base payment for large urban
areas is 1.6% higher. The intent of this rate is to reimburse for the
cost of a typical Medicare patient.
The Federation would like to establish one base payment rate at the
level of large urban areas. We believe that increasing the standardized
amount for the rural and small urban hospitals to the rate of the large
urban areas would not only bring more equity to the table, but it would
also help these hospitals attract and retain critical hospital labor.
The standards of care are the same regardless of location. Whether a
patient is being treated in a rural or urban setting, the standards of
care the physician employ are the same and should, therefore, be
reimbursed the same rate as the large urban areas.
The Federation believes that any comprehensive solution to rural
health care should also address the uninsured in rural America. The
Federation remains concerned about the health and well-being of those
who forego essential health coverage. Clearly, the absence of coverage
is a significant contributor to poor health, and delaying or not
receiving treatment can lead to more serious illness and avoidable
health problems. America's hospitals have and will continue to do their
part to treat the uninsured and indigent in their communities; because
every American deserves access to basic and affordable health care
services--services that provide the right care, in the right setting,
at the right time.
We certainly hope that this testimony sheds some light on what we
believe to be constructive solutions to health care delivery in rural
America. Thank you and we look forward to working with all Members to
address these concerns.
STATEMENT OF THE HON. JIM NUSSLE, A REPRESENTATIVE IN CONGRESS FROM THE
STATE OF IOWA
I appreciate this opportunity to express my continued views to the
Subcommittee about the need to address the disparities in federal
health policy for rural beneficiaries and health care providers.
My home state of Iowa ranks 8th best in the nation for health
quality. However, Iowa ranks 48th worst in the nation for overall
Medicare reimbursements. The reimbursement levels are not fair to Iowa
seniors who rely on Medicare for health coverage, to Iowa taxpayers who
pay as much into the system as taxpayers in other states, and to Iowa
health care providers who are forced to provide quality care with less
than adequate resources.
The disparities in Medicare reimbursement across the country are a
result of outdated, complex and burdensome Medicare policies that when
written, did not take into consideration the uniqueness of delivering
health care in rural states such as Iowa. There lies a distinct rural-
urban disparity in the Medicare reimbursement system that has been in
existence since the program was created in 1965. The Medicare program
has not kept pace with modern medicine and it needs to be modernized.
As Co-chairman of the House Rural Health Care Coalition during the
105th and 106th Congresses, I worked with the Committee to address the
unintended consequences of the Balanced Budget Act of 1997 (BBA) on
rural health care providers. The Balanced Budget Refinement Act of 1999
(BBRA) and the Medicare, Medicaid, SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA) included several provisions for rural
beneficiaries and providers such as improved the Critical Access
Hospital (CAH) program, provided increased payments to Sole Community
hospitals, equalized eligibility under the Medicare Disproportionate
Share Hospital (DSH) program, and expanded access to telemedicine
services.
The BBRA and BIPA provided much needed, immediate relief to
beneficiaries and providers across the country. Congress now needs to
address overall access to benefits for rural seniors and policy
disparities for rural providers within comprehensive Medicare
modernization.
I recently had an opportunity to host a forum with health care
providers in my congressional district and representatives from the
Health Care Financing Administration (HCFA). The forum proved to be
constructive and beneficial to all participants. The health providers
pointed to specific areas in Medicare policy that need to be
modernized.
First of all, the Medicare hospital inpatient wage index needs to
be reformed. It is unfair to all hospitals that the current wage index
for fiscal year (FY) 2001 be calculated according to FY 1997 data. I do
not know any other labor market that has to compete for qualified
professionals with wages based on the market four years prior. Coupled
with the questionable calculation that states that 71% of all
hospitals' budgets are comprised of wage expenses and outdated
methodology for arbitrarily defining hospital labor market areas,
hospitals in rural states like Iowa are struggling to obtain and retain
qualified professionals.
BIPA required HCFA to collect occupational mix data every three
years by FY 2004 and implement a new methodology for using this data by
FY 2005. While this is a step in the right direction, there needs to be
action taken now to ensure hospitals have the resources available to
employ qualified health professionals while keeping their doors open
for our seniors until a new methodology can implemented.
Secondly, the national standardized payment rate for hospital
inpatient services needs to be reformed. I do not believe there should
be two separate inpatient payment base rates----one for rural hospitals
and one for urban hospitals that is 1.3% higher. The playing field
should be level for the Medicare national standardized payment rate.
Additionally, the CAH program needs to be refined and expanded to
include those rural hospitals over 25 beds that are ineligible for the
program but need the safety net in order to keep their doors open. I am
very pleased with the progress and results of the CAH thus far. I
believe rural beneficiaries can continue to have access to their
hometown hospital by expanding CAH eligibility.
Lastly, health providers continue to be bogged down with paperwork
and regulatory burdens. During the forum, I was presented with the
paperwork requirement for one Medicare beneficiary's home health care
incident that, when taped end to end, was 52 feet long. It was a very
striking example of the federal government over medicating our health
providers with paperwork.
I look forward to continuing to work with Chairwoman Johnson and
the Committee to ensure our rural seniors have access to local, quality
health care as Congress considers Medicare modernization.
Volcano Press
Volcano, California 95689-0270
June 15, 2001
Alison Giles, Chief of Staff
Ways & Means Committee
U.S. House of Representatives
1162 Longworth House Office Bldg.
Washington, DC 20515
Dear Alison Giles:
Attached please find a copy of a letter sent to Kaiser Permanente,
a major HMO provider in rural California. Let me start by stating that
we have never received an answer.
In the letter the Agency on Aging Advisory Council of Area 12 (five
rural counties adjacent to Sacramento, CA) asks Kaiser to discuss the
issue of many of its members being ``red lined'' by zip code.
We understand that this is happening as a result of the inequality
in capitation rates between urban and rural areas.
We also understand that this problem was created in the Balanced
Budget Act of 1997 which instructed HMO's to drop members outside their
``service centers''.
Please include this correspondence as part of ``written
statements'' for the hearing on Rural Health Care Provider and
Beneficiary Issues which took place on June 12, 2001.
Sincerely,
Ruth Gottstein
Area 12 Agency On Aging
Sonora, California 95370
March 16, 2001
Lisa Koltun
KAISER PERMANENTE
1800 Harrison Street,
9th floor
Oakland, CA 94612
Dear Ms. Koltun:
The undersigned is a newly formed Health Care Committee for the
Area 12 Advisory Council to the Agency on Aging. Area 12 includes five
counties: Amador, Alpine, Calaveras, Mariposa and Tuolumne.
This letter also carries the endorsement of the Amador Commission
on Aging (see attached).
We would like to meet with representatives of Kaiser Permanente to
discuss the problems and impact of being outside the service areas. For
seniors, many of whom have been members of Kaiser for over 50 years,
this is a tragedy.
Many of us have received notices stating that a decision, based on
zip codes, will result in our memberships being terminated. For
example, Amador county will be divided by this decision.
At the same time, we constantly see full-page, full-color ads
recruiting new members in the Sacramento Bee. We are also aware that
Kaiser will be expanding to Elk Grove, Roseville and Folsom, which are
nearby communities, and will be lowering members' monthly premiums in
Fresno, Kings, Madera, Mariposa and Tulare counties.
Our purpose in meeting will be to discover whether there are ways
in which our HMO and we can work together to find solutions to our
problems, as we value our many years of excellent services from Kaiser.
We propose that the meeting take place in Amador county, and that
once the time and place has been set, we can invite legislators, the
California Department of Managed Care, and the media to attend.
We thank you in advance for your consideration in responding to our
invitation.
Sincerely,
Ruth Gottstein
Chair, Health Care Committee
Area 12 Advisory Council