<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:59990.wais]
BALANCED BUDGET ACT OF 1997: IMPACT ON COST SAVINGS AND PATIENT CARE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
HEALTH AND ENVIRONMENT
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 15, 1999
__________
Serial No. 106-67
__________
Printed for the use of the Committee on Commerce
------------------------------
U.S. GOVERNMENT PRINTING OFFICE
59-990 CC WASHINGTON : 1999
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health and Environment
MICHAEL BILIRAKIS, Florida, Chairman
FRED UPTON, Michigan SHERROD BROWN, Ohio
CLIFF STEARNS, Florida HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia PETER DEUTSCH, Florida
RICHARD BURR, North Carolina BART STUPAK, Michigan
BRIAN P. BILBRAY, California GENE GREEN, Texas
ED WHITFIELD, Kentucky TED STRICKLAND, Ohio
GREG GANSKE, Iowa DIANA DeGETTE, Colorado
CHARLIE NORWOOD, Georgia THOMAS M. BARRETT, Wisconsin
TOM A. COBURN, Oklahoma LOIS CAPPS, California
Vice Chairman RALPH M. HALL, Texas
RICK LAZIO, New York EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN B. SHADEGG, Arizona JOHN D. DINGELL, Michigan,
CHARLES W. ``CHIP'' PICKERING, (Ex Officio)
Mississippi
ED BRYANT, Tennessee
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Corlin, Richard F., Speaker of the House of Delegates,
American Medical Association............................... 128
Crippen, Dan L., Director, Congressional Budget Office....... 97
Hash, Michael, Deputy Administrator, Health Care Financing
Administration............................................. 28
Holveck, David P., CEO, Centocor, on behalf of Biotechnology
Industry Organization...................................... 134
Rapp, Sally, Independent Owner, Saint Francis Extended Care,
on behalf of American Health Care Association.............. 114
Roberts, Nancy, President and CEO, Kent County Visiting Nurse
Association, on behalf of Visiting Nurse Association of
America and National Association for Home Care............. 120
Ross, Murray N., Executive Director, Medicare Payment
Advisory Commission........................................ 80
Scanlon, William J., Director, Health Financing and Public
Health, General Accounting Office.......................... 89
Warden, Gail L., President and CEO, Henry Ford Health System,
on behalf of American Hospital Association................. 149
Material submitted for the record by:
American Academy of Family Physicians, prepared statement of. 172
American Heart Association, prepared statement of............ 174
American Medical Group Association, letter dated September
14, 1999, enclosing statement for the record............... 166
Hash, Michael, Deputy Administrator, Health Care Financing
Administration, letter dated November 16, 1999, enclosing
reponse for the record..................................... 174
(iii)
BALANCED BUDGET ACT OF 1997: IMPACT ON COST SAVINGS AND PATIENT CARE
----------
WEDNESDAY, SEPTEMBER 15, 1999
House of Representatives,
Committee on Commerce,
Subcommittee on Health and Environment,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2322, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Upton, Stearns,
Greenwood, Deal, Burr, Bilbray, Whitfield, Ganske, Norwood,
Cubin, Shadegg, Pickering, Bryant, Bliley (ex officio), Brown,
Pallone, Deutsch, Stupak, Green, Strickland, DeGette, Barrett,
Capps, Hall, Towns, Eshoo, and Dingell (ex officio).
Staff present: Tom Giles, majority counsel; Pat Morrissey,
majority counsel; Robert Simison, legislative clerk; Bridgett
Taylor, professional staff member; and Amy Droskowski,
professional staff member.
Mr. Bilirakis. Good morning. I am being accused of
diverting the hurricane from Florida and sending it to Virginia
and messing up Mr. Bliley's boat, the chairman's boat. So I had
better get this hearing started.
Well, I am pleased to convene this hearing on BBA 1997. It
is time certainly for us to step back and review the impact of
the BBA on providers and beneficiaries, and certainly we have
been doing that for some time.
Just over 2 years ago we enacted landmark changes to the
Medicare program. Many of these changes were designed to
provide for more beneficiary choice and to help guarantee the
solvency of the Medicare program well into the next century.
I am proud of that legislation and this committee's vital
role in its creation. The BBA was enacted with bipartisan
support and I believe it is critical that we work together in
considering any changes to the law.
I am pleased to report that we are achieving many of the
objectives of the BBA. Wasteful spending is down; medical
solvency has been extended and many seniors have increased
access to health care services and providers. Also, the amount
of money lost to the Medicare program through fraud and abuse
has dropped considerably due to the new abilities of the
Department of Health and Human Services' Inspector General and
the Justice Department.
However, as we all know, and the room is full, the BBA has
also had some unfortunate unintended consequences. In some
cases more savings were realized from providers than originally
anticipated. In other cases, HCFA has failed to act in a manner
consistent with beneficiaries' interests and congressional
intent. We hope to address these problems through legislative
action this year.
Today we will hear from both providers and HCFA about the
most recent problems facing the Medicare program. This
subcommittee has already held two hearings on issues related to
Medicare Plus Choice and I am committed to protecting seniors'
health care options under that program.
This hearing will focus on a multitude of other areas
affected by the BBA. As we begin crafting legislation to
correct some of these unintended consequences, the testimony
from this hearing will help us make informed decisions about
the scope of any legislation.
I am very interested in hearing from our distinguished
panels today and obviously am grateful to them for taking time
away from their schedules to be here. Each witness can provide
valuable insight into the effects of the BBA on providers and
on beneficiaries' access to health care services. With the
imminent implementation of a prospective payment system for
hospital out-patient departments and home health agencies, we
hope to hear some constructive suggestions about how these
regulations can best be refined.
However, I would caution that the days of runaway Medicare
spending are over. While we work to ensure patients' access to
necessary services we must remain vigilant guardians of public
funds. As we draft legislation to amend BBA, we certainly will
not be reopening every provision.
Funds must go to those areas of demonstrated and compelling
need. HCFA, however, must also be sensitive to the legitimate
issues raised by many of the provider groups here today. Many
of these concerns can, and should, be resolved
administratively, and I would like to emphasize that. Many can
and should be resolved administratively, and we will get into
that later with our witnesses.
One particular area is the plight of the cancer hospitals.
I ask HCFA to work with this committee to revise the ambulatory
patient classification, APC system, in a manner consistent with
statutory intent. The proposed APC system will erode patient
quality and access to needed services. If the current proposal
becomes effective, many procedures will simply migrate to the
more expensive in-patient settings, thus ultimately increasing
costs to the Medicare program. Site of service recommendations
by providers will be made with an eye toward reimbursement
levels rather than focussing on patient access and convenience.
This is just one issue that I hope we can address today.
Obviously there are many.
Again I would like to thank our witnesses who will testify
and I particularly appreciate, and I want to accent this,
appreciate HCFA's agreement to have a high-level official
present for the duration of the hearing to better understand
and take notes and share back with his or her HCFA personnel
the stakeholder issues. I look forward to productive dialog and
I recognize Mr. Brown for an opening statement.
Mr. Brown. Thank you, Mr. Chairman.
I am glad, Mike, you could join us today and I would like
to welcome other distinguished witnesses to the three panels.
Mr. Chairman, I want to commend you for arranging this
hearing. Our subcommittee surely has a lead role in addressing
concerns related to the Medicare provisions of BBA, and this
hearing is timely and appropriate.
Our focus today reflects the subcommittee's jurisdiction
over Medicare Part B. We cannot appreciate the impact of the
Part B changes unless they are viewed in the context of the
entire package of cuts. Providers have surely been hit from all
sides.
I am sure all of my colleagues, like me, have received
hundreds of letters and postcards, faxes and phone calls in the
aftermath of BBA. Health care administrators and providers whom
I have known for years and whose counsel I value very highly
say the BBA cuts are jeopardizing their financial viability and
compromising access to care.
These are serious issues. Congress must address them.
Access, quality and universality are the foundations of
Medicare and BBA cuts have potentially placed two of those
three at risk. I cannot emphasize strongly enough that we need
to assess the BBA concerns now because what providers are
telling us is that if the damage is being done now, much of it
will be irreversible.
I also cannot emphasize strongly enough to those of you who
are living with the BBA changes the importance of providing
Congress with information that can help us determine what the
next steps actually are. We need to know specifics. We need to
get a sense of how BBA is affecting health care on a day to day
basis, to the greatest extent possible see analysis and data
that target the worst trouble spots.
This information is critically important because we cannot
turn back the clock. One of the reasons we cannot turn back the
clock relates to the three foundations of Medicare that I
mentioned a moment ago: quality, access and universality. As
the premium support campaign clearly illustrates, any changes
we make in Medicare can be coopted for purposes that could
ultimately undermine all three objectives.
When we lose BBA savings we are not only accelerating
Medicare insolvency; we're risking the consequences of making
Medicare a more expensive program to run. What I mean by this
is every step we take that weighs Medicare down provides fodder
for privatization--the ``Medicare is too expensive, managed
care plans can do it better'' rhetoric. And that is a big price
to pay. If providers think it is an uphill battle with
Medicare, just wait until managed care gets hold of it. If we
are worried about access and quality now, wait until Medicare
beneficiaries' only choice is a managed care plan.
Mr. Chairman, I want to raise one more issue that I believe
is inexorably linked and tied to any discussion of BBA fixes--
tax cuts. If your representative tells you that he favors or
she favors BBA fixes and also says that she favors or he favors
a tax cut, let's say in the $600 billion, $700 billion, $800
billion range, they are either being disingenuous or they are
looking at a very, very different Federal budget.
Tax cuts anywhere near that size would not only obliterate
any flexibility to restore BBA funding; the BBA cuts would
pale, the BBA cuts that many providers have received, have been
hit by, would pale in comparison to what providers would face
in the years ahead if a large tax cut goes forward.
This is not a threat; it is a fact. The $792 billion
majority tax cut proposal assumes one, favorable economic
conditions will be locked into place for a decade. Two, it
assumes no emergency spending during those 10 years. Three, it
would require a 10 to 12 percent reduction in every Federal
program. Think about that. Medicare Part B comes out of general
revenues. If there is a $790 billion tax cut, austerity, severe
cuts would be our only option.
We have been through this before. I think many of us in
this room recall the original BBA envisioned cutting Medicare
and Medicaid by $270 billion. Against the odds, we defeated
that. But as we look at the pain caused by BBA savings so far,
I urge you to keep in mind what we could be facing if our
resources now and in the future, even the resources we need to
support current Medicare spending, if our resources now and in
the future are instead channeled into tax cuts. Beware. Thank
you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Bliley, chairman of the full committee, for an opening
statement.
Chairman Bliley. Thank you, Mr. Chairman. I would ask
unanimous consent to put my full statement in the record.
Mr. Bilirakis. Without objection, the statement of all
members of the panel will be made a part of the record.
Chairman Bliley. Mr. Chairman, I thank you for having this
hearing. I did not know that there were so many providers of
health care in Virginia until we did the BBA but I think I have
seen them all and the story is pretty much the same, that we
have gone too far with these cuts, that hospitals are
hemorrhaging, that HCFA promised that if the hospitals did due
diligence on trying to collect bills, that they would reimburse
them 100 percent for their losses. Now they have cut it to 50
percent.
The DRG, which says that if a procedure calls for a 3-day
stay in a hospital and if the hospital is efficient and gets
the patient out in 2 days and they go to a skilled nursing
home, HCFA cuts back on the reimbursement. However, if the
patient has to stay longer, they do not get any extra for that.
The same is true for home health. The same is true for out-
patient.
I want to thank the administration for having your staff
here to hear all the witnesses and I would like for the
administration to submit in writing for the record a list of
all the concerns you hear today that seek a change in policy.
Please let us know what you feel you have the authority to fix
and what you feel needs congressional action. To the extent you
can provide as extensive a rationale for your decision would be
helpful. I look forward to reviewing your responses.
I thank you, Mr. Chairman, and I am going to be in and out
because there is another hearing downstairs in the
Telecommunications Subcommittee that I need to make an
appearance at.
[The prepared statement of Hon. Tom Bliley follows:]
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
Thank you, Mr. Chairman.
I am pleased that the Health and Environment Subcommittee is
holding this hearing today. This Committee made some very important
changes to the Medicare program two years ago, and it is important to
monitor the impact those decisions have on our health care delivery
system. In particular, I am most interested in knowing of any
unintended consequences that may have an adverse affect on access to
care.
In the Balanced Budget Act of 1997, this Committee made some
difficult decisions in how best to address the concern of the Nation
that the Medicare program was facing financial ruin, and changes needed
to be made. Some significant changes were enacted. Moving to a
prospective payment system for hospital outpatient department services,
skilled nursing facility services and home health services helped
reduce federal spending by $115 billion over 5 years, and created new
efficiencies within the Medicare program. I am proud of the BBA 97 for
that reason.
Now there has been much discussion about revisiting some of those
tough policy decisions we made two years ago. As this Committee
considers BBA 97 refinements, I hope we learn today from our witnesses
that the Administration has done all it can within the law to foster
the best, most efficient patient care.
This Committee takes a dim view of regulations that exceed their
statutory basis, or when the Administration doesn't do enough within
its administrative authority to meet the legitimate concerns of the
American people. That is why I hope we will continue this series of
formal inquiries by this Committee into this important program and its
implementation.
I look forward to hearing from our witnesses today. In addition, I
am hopeful that representatives from the Health Care Financing
Administration are able to comply with the request Mr. Bilirakis made
when he invited you to this hearing, that you will be able to stay to
listen to all of the witnesses before us today. At previous hearings,
we have heard concerns some witnesses have raised regarding HCFA's
implementation of laws affecting the health care industry. I think it
would be valuable for HCFA to stay to hear those concerns first hand.
Again, Mr. Chairman, thank you for convening this hearing today.
Mr. Bilirakis. Thank you, Mr. Chairman. Thanks for being
here.
Mr. Pallone for an opening statement.
Mr. Pallone. I want to thank the chairman for holding this
hearing. The Balanced Budget Act's impact on the hospitals in
my home State of New Jersey has been severe and unfortunately
is getting worse.
The situation is so bad in New Jersey that hospitals are
starting to close. Memorial Medical Center at South Amboy in my
district recently closed its doors to new patients during the
break. And just last Friday, St. Clair's Hospital in Dover, New
Jersey announced its closure as an acute care facility.
I have been working, Mr. Chairman, with the New Jersey
Hospital Association to identify the worst of the problems
affecting New Jersey's hospitals and I would just like to
briefly run through them.
The first I want to mention is the out-patient prospective
payment system, PPS. HCFA's interpretation, which exceeds
congressional intent, would reduce hospital out-patient
payments by 5.7 percent nationwide. In New Jersey, however,
this view of the BBA will cost hospitals 16.6 percent on
average and 40 percent of New Jersey's 85 acute care hospitals
have a negative Medicare operating margin. This is unacceptably
low and unfair, in my opinion.
Accordingly, while I am not opposed to an equitable PPS
system, I am opposed to the one HCFA has proposed. An
appropriate remedy to this problem would be either to try a
demonstration project first or to postpone the implementation
of the PPS system altogether until a better one can be
developed.
Second, Mr. Chairman, graduate medical education payments
needs to be rebased on data more current than 1984. New Jersey
was under a Federal waiver from 1983 to 1989 and was not
required to file Federal Medicare cost reports. Consequently,
the data from which the New Jersey teaching hospitals are paid
does not adequately reflect New Jersey's teaching costs. A
targeted rebasing plan for those States that are reimbursed
less than 70 percent of their costs based on 1996 data would
benefit hard-hitting teaching hospitals.
Third, Mr. Chairman, the Medicare transfer policy is
flawed. The expansion of the definition to include Medicare
patients who are sent from an acute care hospital to any
postacute setting inhibits a hospital's ability to seek patient
treatment in an appropriate setting. The BBA moreover, allowed
for this expanded definition to be applied to further patient
treatments, and this is having or will have a devastating
effect on New Jersey's hospitals.
More than 24 percent of New Jersey's seniors seek
additional care after a hospital stay and the cost to New
Jersey's hospitals will be $18 million a year. The transfer
provision penalizes efficient hospitals. The expansion of the
transfer provision to other patients is also a problem.
Fourth, the skilled nursing facilities, PPS, is also
flawed. It is inadequate for individuals with complex medical
needs. Because of the poor reimbursement rates for patients in
skilled nursing facilities, patients are increasingly seeking
placement in hospitals instead of in the most appropriate
settings. This, in turn, increases the length of hospital
stays, leaving hospitals susceptible to criticism for not
discharging patients fast enough. And this cycle could and
should be changed. In my view, HCFA needs to accurately
recognize the added costs of nontherapy ancillary services for
skilled nursing facility patients.
And fifth and finally with regard to the hospital concerns,
while Congress alleviated some of the financial burdens
associated with the interim payment system for home health care
providers, with regard to home health care now, more needs to
be done. The 15 percent across-the-board reduction in payment
rates that will take effect on October 1, 2000 if a PPS system
is not implemented will crush New Jersey's home health
providers who provide the care at rates well below the national
average of home care spending per patient and the 15 percent
across-the-board reduction obviously is a problem.
Mr. Chairman, I just want to say that because New Jersey's
hospitals cannot afford to wait, I am working on legislation
that would correct these problems. But before closing, I wanted
to mention two more concerns arising from the BBA.
Earlier this year I joined my colleague from North
Carolina, Mr. Burr, in introducing the Medicare Rehabilitation
Benefit Improvement Act. This bipartisan effort would amend the
$1,500 caps imposed by the BBA on physical and speech therapy
and occupational therapy. Specifically it would provide for
exceptions, allowing certain Medicare beneficiaries to obtain
services beyond the $1,500 caps. These caps are denying some of
the most vulnerable seniors, particularly stroke victims and
those with multiple injuries or diseases in a single year,
much-needed therapy, and exceptions need to be made.
And last, Mr. Chairman, I wanted to mention the impact on
Medicare Plus Choice. I know we had hearings on this and that
is not the topic today but over the August recess I heard from
many frightened seniors who were concerned about Medicare Plus
Choice providers pulling out of their service areas and I have
come to the conclusion that the cuts in payments to Medicare
Plus Choice providers are too steep. Providers that are paid
well do not leave the program, in my opinion, or scale back
benefits. One legislative option I am considering would
increase the payment floor for Medicare Plus Choice providers
relative to the fee-for-service payments.
I know that my colleagues, and I think rightly so--I
listened to what Mr. Brown said in particular--we all realize
that we cannot make every change and increase everything with
regard to the BBA but I do think that we are starting to see
some major problems now, particularly with regard to hospitals.
And my response, particularly with regard to New Jersey's
hospitals, is based on the concerns that I saw, the actual
closings of hospitals that have occurred within the last month
or 2.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman and I would suggest to
the gentleman that the scope of this hearing is intended to
include the impact on cost savings and patient care regarding
not only how the Balanced Budget Act was crafted but also how
it is being interpreted by HCFA. So the points that you make
are clearly intended to be a part of this hearing.
Mr. Greenwood for an opening statement.
Mr. Greenwood. Thank you, Mr. Chairman. I will be brief.
This is a very, very important hearing and I thank the
chairman for holding it. Whatever metaphors we use to describe
the unintended consequences of the Balanced Budget Act of 1997,
throwing the wheat out with the chaff or the baby out with the
bathwater, cutting bone when we were trying to cut fat, the
fact of the matter is that the corrections were too severe.
When you are in this business any amount of time, I think
you can judge sincerity and when I meet with my hospital
representatives, my home health care agencies, when I meet with
my skilled nursing facilities, I can sense the sincerity of
their dilemma. It is real.
But it is also important that we correct our course here
and that we not back-track. The worst that we could do is be
sitting around in 2001 having a hearing about how we
overreacted in 1999 to the way that we overreacted in 1997, and
keep the yo-yo going up and down. So we need to find the right
course here and I am confident that with these hearings we will
begin that process.
I yield back, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman, for holding this very
important hearing and good morning to you, to all my colleagues
and to the distinguished individuals that are here today to
offer their testimony for us.
Like so many of my colleagues, I too have heard the
complaints--I think that they are legitimate; I think that they
are real--from my health care providers in my wonderful
congressional district and they are all about what we did in
the Balanced Budget Act of 1997.
Hospitals, home health agencies and nursing homes across
our country say they cannot live within the budget cuts we
enacted just 2 short years ago.
A recent Lewin Group study found that payments to health
care providers are already $40 billion lower than we
anticipated when we passed the BBA. The study conducted by the
American Hospital Association warns that the BBA cuts could
leave seven out of 10 hospitals to operate with negative
Medicare margins within 3 years.
Before coming to the House, I served as the chair of a
county hospital board of directors for almost 10 years. I was
very, very involved in the day-to-day operations, in the
overall health care for 650,000 people in San Mateo County,
California. So I know that a hospital cannot continue to offer
services on a negative margin.
So something obviously has to give. And what I fear is that
the thing that is actually giving is patient care. There are
the providers but the real face to all of this are the people
that receive the care. Without relief, hospitals, home health
agencies and nursing homes are faced with two options. They
either cut back services or withdraw from the Medicare program
altogether.
And it is already happening in many quarters across the
country. In the first year following enactment of the BBA,
nearly 25 percent of home health agencies in our country closed
their doors. The result: over 500,000 fewer seniors received
home health services in 1998 than in 1996. I think for a great
Nation obviously we can do much better than this.
The $1,500 annual cap on physical and speech therapy is
forcing some beneficiaries recuperating from strokes, suffering
from Parkinson's disease and multiple sclerosis to prematurely
end needed therapy.
So it is my sincere hope, Mr. Chairman, that this hearing
is just the first step in a very real serious examination of
not only the issues that each one of us is outlining as we make
our opening statement but that out of this will come an
insurance policy, so to speak, to those that participate in
these programs, that need to participate in these programs,
that they will continue to have access to solid, good quality
health care in the greatest country on the face of this earth.
I understand that the leadership not only of this committee
but of Ways and Means, and I think that you touched on this in
your opening statement, Mr. Chairman, are working on a BBA fix
bill. I look forward to that. I will roll my sleeves up and
work with you.
I just want to add a footnote to this. I know that our
ranking member talked about the tax cuts. I think that it is
very important for Members of Congress to have credibility
obviously with the American people. From the earliest days of
this nation, Congress, of course, by poets and writers has
always been the brunt end of jokes. But we have an opportunity
here. We know what the truth is, what is going on, because we
go to our districts every week. The chairman of the Commerce
Committee stated that he never realized that there were so many
providers in his State and he has met with every single one of
them.
So we have our finger on the pulse of what is going on. We
know this. We are going to hear it in a much clearer way and
hear from professionals today.
It is very important for the Congress and the majority
party, who are in charge of governing here, that we tell the
truth about the caps. No. 1, caps have worked. That is why we
continue to accrue the benefits in terms of our Nation's
budget.
But we also have to tell the truth about the caps that were
set and maybe were not set right a few years ago. We should
have the courage of our convictions to reset those caps, and we
can do this. We can still be fiscally responsible and be
responsible to the people of our Nation in the area of health
care that they need the most.
This is not something that you can say, ``Take it or leave
it.'' Ask a Member of Congress if they are willing to take it
or leave it in terms of their own health care or our children's
or our spouse's or our parents'. We would say no to that. The
same thing with the family of the American people.
So thank you for holding this hearing. I look forward to
not only the testimony but the outcomes that I am very sure
that we can not only grapple with but on a very fair and honest
basis, do something about it. Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentlelady.
Dr. Ganske for an opening statement.
Mr. Ganske. Thank you, Mr. Chairman. I appreciate your
having the hearing and I am sure that you are concerned about
what is going on with Hurricane Floyd and have important things
on your mind, but this is important, too.
I have rural hospitals in my district that are on schedule
to lose $1 to $2 million in Medicare reimbursement over the
next 3 or 4 years. These are hospitals in small towns of 3,000
to 5,000 that are situated at some considerable distance from
major metropolitan areas. If you do not have hospitals in those
towns, you will not have physicians practicing in those towns
and it is a matter of economic survival to those communities.
It would be equivalent to losing your school.
So we are not talking just about reductions in the rate of
growth. We are talking about actual cuts. For instance, the
remuneration for a cataract operation in those hospitals
currently is about $1,300. I think they are scheduled to go
down to $980, as sort of an average.
The University of Iowa, a teaching hospital, is scheduled
to lose $65 million under BBA. It is clear in my mind that we
need to make an adjustment for rural hospitals and for the
teaching hospitals from BBA.
Just to go back historically, I remember in 1995 the Budget
Committee came out with a proposal to cut Medicare by $285
billion. Mr. Chairman, can you imagine what we would be dealing
with today had that become law? And I remember sitting down
with the Budget chairman, with the Speaker of the House and
many others and saying, ``If you do this, you are going to be
significantly hurting patient care,'' and I just could not get
anywhere.
So finally, as you well remember, Mr. Chairman, in a
hearing of this subcommittee in 1995 I became the first
Republican to speak out against that budget as it related to
Medicare and if looks could kill, I would be dead today. But
fortunately, we were able to reduce that to $115 billion and I
voted for that bill, but on the proviso to my leadership that
we would look at the results of that bill and if necessary, we
would come back and do an adjustment.
For 6 months I have been trying to get our leadership in
the House to deal with this issue and it does fit into the
issue of our total overall budget, whether we are talking about
tax cuts or reducing the debt or finishing up our
appropriations bills.
And so I am very glad that we are having this hearing. I
can tell you that my State of Iowa, the hospitals and the
providers are 24th in the country in terms of their overhead.
They are 48th in the country in terms of their reimbursement.
And if you add BBA to that with consequences that are growing
way beyond what we envisioned when we passed the bill, then it
is a prescription for some real trouble with patient care that
we are going to hear about today.
So I believe that this Congress needs to get a move on on
this issue and I look forward to the testimony. Thank you, Mr.
Chairman.
Mr. Bilirakis. Mr. Green for an opening statement.
Mr. Green. Thank you, Mr. Chairman, and I would like to,
like my colleagues, thank you for scheduling this important
hearing and associate myself with the remarks of my colleague
Ms. Eshoo and particularly Mr. Greenwood on the all the
unintended consequences and the response we have.
When Congress passed the Balanced Budget Act of 1997, the
Medicare spending was firing out of control. Something needed
to be done to slow the growth and stabilize the Medicare
program until a long-term solution could be found. However, the
state of Medicare, along with the rest of the Federal budget,
has improved much quicker than any of us anticipated. The fact
is the Medicare spending rate has been significantly lower than
anticipated and while this is good for the long-term stability,
I am concerned about the negative impact it is having on the
beneficiaries.
Almost since the day it passed, providers have been warning
us about the effects the cuts will have. And while much of the
BBA is yet to be implemented, we already are seeing some of the
worst case scenarios come true.
Home health care agencies around the country are closing,
leaving hundreds of counties without any provider. And this
week Vencor, which operates nursing homes and hospitals all
over the country, including in Pasadena, Texas in my district,
filed for bankruptcy. And this may be just the beginning. As
the PPS for skilled nursing facilities is fully implemented,
there is a widespread concern that the sickest and the most
frail beneficiaries will be unable to receive all the care they
need once they reach their therapy caps.
And finally I would like to address the potential negative
impact the hospital out-patient prospective payment system
could have, particularly on patients with cancer. Under the
proposed rule, HCFA proposes to bundle the cost of all cancer
drugs into a small number of ambulatory payment categories,
APCs, and pay hospitals only the average cost of these
services. The main problem with this proposal is that it fails
to recognize the complexities of cancer treatments and the wide
range of individual needs of each patient with cancer.
As a result, the payment system could threaten the quality
and availability of cancer treatment for Medicare
beneficiaries. In fact, under HCFA's proposed plan, the lowest
reimbursement rate for some cancer treatments would be under
$60, which is expected to include supportive care. Moreover
under the proposal, new drugs, which are defined as anything
after 1996, would be reimbursed at the lowest rate. This policy
would create an overall reduction in the quality of patient
care, since hospitals would be pressured to provide the least
expensive rather than the most effective treatment.
Moreover, research and development for new drug therapies
may be diminished and delayed, ultimately denying the patients
of today in those future generations access to more effective
treatments. How can HCFA expect hospitals to prescribe the
newest and in some cases the most effective drugs, many of
which cost hundreds if not thousands of dollars, if they are
reimbursed less than $60?
I have introduced H.R. 1090, the Medicare Full Access to
Cancer Treatment Act. This bill already has 55 bipartisan
cosponsors and it carves out cancer treatment from the out-
patient PPS. This simple yet sensible action would fully
protect Medicare beneficiaries' continued access to the best
and most effective cancer care.
I know HCFA has received numerous comments on this issue
and I hope their final rulemakes our legislation unnecessary.
However, if their proposal is implemented as originally
proposed, the recent advances in cancer treatment and the
billions of taxpayer dollars dedicated to finding cures for
cancer will be wasted.
Again Mr. Chairman, I thank you for scheduling this hearing
and look forward to discussing these issues with our panels.
Mr. Bilirakis. I thank the gentleman.
Mr. Bryant?
Mr. Bryant. Thank you, Mr. Chairman.
I, too, as every Member of Congress, not just on this
subcommittee, heard during our August recess complaints from
hospitals and home health care agencies and nursing homes and
I, too, think they are legitimate.
I thank the chairman for convening this hearing. I thank
the numerous very competent and qualified people we have here
to testify today. And in the interest of somewhat speeding this
along, I will yield back my time. Thank you.
Mr. Bilirakis. I thank the gentleman.
Mr. Stupak for an opening statement.
Mr. Stupak. Yes, Mr. Chairman, and thank you for holding
this hearing. I, like many of my colleagues, have heard from
health care providers about the problems that the Balanced
Budget Act of 1997 has been causing them.
I am especially concerned about the effects of the BBA on
rural areas. I know my friend Dr. Ganske pointed out some of
these things. I think even the administration recognizes this
fact. If I can quote Dr. Robert Marinson. He's the director of
the Center for Health Plans and Providers of HCFA.
He testified earlier this year and he said, and I quote,
``About one in four Medicare beneficiaries live in rural
America and rural hospitals serve a critical role in areas
where the next nearest hospital may be hours away. Yet rural
hospitals face special challenges. They have a higher per unit
cost, difficulty maintaining enough patients to break even, and
difficulty recruiting physicians. Medicare has made exceptions
and special arrangements to address the unique needs of rural
areas and strengthen these vital facilities. Even before the
BBA, Medicare provided special payment support to more than
half of all rural hospitals.'' That is the end of his quote.
The special challenges and concerns are why the BBA has had
a disproportionate impact on rural areas. The administration
understands the concerns of rural areas and has proposed a
number of steps to begin to remedy these conditions.
As our chairman Mr. Bliley pointed out, he wanted to know
some things that could be done. I would ask that he and all of
us take a look at the President's Medicare plan, which adjusts
the wage index in rural areas, the new out-patient PPS system
to increase payments to low-volume rural hospitals, the
transition to PPS to allow for a budget-neutral impact, the
timeframe for implementing the volume control mechanisms on the
system that were called for in the BBA, which also will give
hospitals extra time and money to adjust, and finally, increase
the rates for in-patient rural hospitals to larger than they
would receive under a straight-line extension of the BBA from
203 to 209.
I appreciate the President's proposals and I hope we would
all look at them and his desire, the President's desire, to
improve rural health. However, I believe that we do need to go
further. I would urge HCFA to listen to the rural providers in
my district and all around the country about their financial
condition. Unlike areas where the country where a number of
providers compete to provide health care services, in my
district there is only one hospital servicing one or more
counties. There is a limited number of nursing homes and home
health agencies. If any one of these facilities failed
financially, residents may be forced to drive hundreds of miles
to the nearest surviving health care facility.
I know many of my providers, and I believe them when they
tell me that these cuts, especially to the out-patient
department, are injuring and damaging their financial bottom
line.
Mr. Chairman, it is crucial for Congress to enact these
issues. I support the President's plan to increase funding for
rural hospitals. I think it can be improved and I urge my
colleagues to sit down and start discussing these issues. We
can and we must ensure our constituents have access to
affordable health care.
Mr. Chairman, thank you again for holding this hearing. I
look forward to working with you. I will be in and out all day
as we have an amendment or two on the floor. Thank you, Mr.
Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Burr for an opening statement.
Mr. Burr. Thank you, Mr. Chairman. Welcome, Mike.
Mr. Chairman, it is evident as I look out at this audience,
I see something significantly different than I have seen at
health care hearings before. There is a fear in everybody's
eyes. It is the same fear that I have seen at hospitals and
doctors' office but more importantly, it is the same fear and
question mark that exists in the public across the country.
And I think the real challenge and the real answer that we
need to find out today is not the short-term and the long-term
solutions to these problems but it is a question of can
Congress and HCFA work together to, in fact, identify the
problems and come up with real solutions that address them for
the short-term benefit and for the long-term benefit?
Short term, we have some financial crises that have to be
addressed. They will be addressed hopefully through legislation
that we, in a cooperative way, try to address before the end of
this calendar year. And it will enable providers to deliver
care that we would consider to be basic care in many cases.
But I think that there is a long-term crisis that many of
us do not have on our chart yet. That long-term crisis is the
way that financial markets look at the health care industry
today, look at providers all across this country and the fear
that they have to make an investment. Somebody, I think Mr.
Green, alluded to Vencor's most recent problems. Vencor is not
the first and they will not be the last to experience the
shortage of capital needs to meet current debt but in their
particular case, they can no longer think about future needs.
Mr. Chairman, we have to be as concerned with today's
crisis as we are with tomorrow's needs. And I think for that
reason I am hopeful that this will be the start of a process
that brings not only the short-term benefits that are needed
within this industry but also some sense of confidence that
long-term, this will be predictable. And I think that we both
share blame, HCFA and Congress, about the unpredictability of,
in fact, where we are.
Mr. Chairman, this is an opportunity to get the policy
right if, and I say that in a big way, if we can keep politics
out of this issue. I am confident with the efforts that I have
seen from HCFA, with the work that I have seen from my friends
on the other side of the aisle but, more importantly, the
interests of the American people, that we will keep politics
out of it and we will, in fact, find the right balance.
Mr. Chairman, every member on this committee probably has
one special interest that they have been counseled aggressively
over the August break, whether it is a hospital or a long-term
care facility, whether it is a specific service, and they all
have merit. There is no question.
I am hopeful that this committee and HCFA will understand
that we cannot respond to every need tomorrow, but our job is
like it was 2 years ago when we started on this, to try to find
the right balance. I have always suggested, since I have been
in Congress, never to judge Members of Congress on what we did
but to judge us on our ability to identify our mistakes and how
quickly we go and fix them.
We work within the confines of a lot of different
constraints. I am confident that we can design a better
delivery system, one that fairly reimburses, one that delivers
the same quality of care that we are all after. But I would
challenge my friends on this committee that it will demand a
tremendous amount of work in the next several months to start
that process and to hold the type of control that we need to
make sure that we do not end up with the same product that we
started with several years ago.
I thank the chairman and I yield back.
Mr. Bilirakis. I thank the gentleman. Well said.
Ms. Capps?
Ms. Capps. Thank you, Mr. Chairman, for holding this very
important hearing.
The Balanced Budget Act of 1997 enacted some far-reaching
changes in the way Medicare pays health care providers. These
changes were intended to both modernize Medicare and save some
$115 billion over 5 years.
Today there is growing debate about whether the savings are
actually much larger than Congress had anticipated and how
those changes could be affecting services. The provider groups
say that they are larger than expected and that delivery of
care could be compromised. MedPAC, GAO and HCFA seem to be
saying it is too early to tell but that we should be watchful.
Like so many members, I have been hearing some health care
providers in my district regarding these cuts in the BBA and
how they are affecting and may affect in the future the ability
of providers to provide quality health care to our seniors and
to others in our communities and I take these concerns very
seriously.
There are a number of issues which I hope the subcommittee
can explore this morning and I really stress the timeliness of
this hearing and thank the leadership for providing it. For
example, according to MedPAC, the cuts to hospitals are
expected to have the most dramatic effect in small, rural
hospitals and cancer hospitals and my colleagues Green and
Stupak have addressed these issues and I underscore their
comments in this area. I want to hear from HCFA what steps it
plans on taking to ensure the viability of these critically
important institutions.
I also would like to explore the effects of the $1,500
therapy cap. Are beneficiaries losing access to critical care
under the cap? And if so, is this what the intention of the cap
was?
And that is what this hearing is really all about. How are
these changes affecting the delivery of care to seniors and
others in our communities? I am heartened by the fact that many
we have checked with seem to be saying that quality of care has
not been affected yet, but I am also very worried because I
know, as you all know, that the most dramatic changes are still
to come.
I am also concerned that the numbers we are seeing are not
reflecting the whole story, that if we have shorter numbers of
days in hospitals, if we have fewer home health care visits,
does this really mean that we have healthier citizens? I do not
think it necessarily does translate that way and that is why I
am concerned about the numbers.
And that is why I am particularly looking forward to our
witnesses today on these and other critical issues and I
particularly look forward to panel three when we can hear from
people who are out in the field. I want to pay special
attention to what, for example, Miss Nancy Roberts will be
saying from Kent County Visiting Nurses Association in Rhode
Island. Earlier in my career I was a visiting nurse in Hamden,
Connecticut and I trust that these providers have their pulse
on real health care in our country today. And I want to make
sure that when we talk about marketplace numbers and how this
translates that we do not forget that it is patients and people
receiving care that are the bottom line of what our business of
health care is all about. And I yield back the balance of my
time.
Mr. Bilirakis. I thank the gentlelady.
Dr. Norwood, an opening statement?
Mr. Norwood. Thank you very much, Mr. Chairman. I will
submit for the record but let me just briefly say that we have
for a long time tried to understand how to pay for a
government-run health care system, which basically Medicare is,
and the American people clearly want all of the health care we
possibly can afford them and Congress seems to want to give
them all of the health care that they want. It is a continuing
and ongoing problem, however, as to how to pay for that.
Now some of us who have a bias, such as myself, want to put
money into health care. However, I do not want to do so to the
extent that my grandchildren pay for the benefits that patients
today receive. And part of our problem is in prioritizing our
expenditures is that if you want to put more into the Medicare
system, you have to find somewhere else to take the money out
because there is a limitation on the number of funds.
Now I have heard 2 or 3 members here act so surprised that
providers are dropping out of Medicare Plus. Well, of course
they are dropping out of Medicare Plus. It is a very simple
principle. When you will not pay people the cost of doing
business, they go out of business. They cannot continue in a
program where they continually take a loss, particularly in
this day of managed care where there is not that old cost-
shifting going on because that is not possible anymore.
We look at our rural hospitals and we wonder what is
happening. Well, of course they are going to close. Medicare
and Medicaid are the only thing most of them can depend on
because they are never one of the discounted hospitals in
managed care. They never do anymore have patients coming into
their hospitals that have good insurance plans, indemnity plans
or fee-for-service. They are dependent on Medicare and
Medicaid.
Well, if you are not going to pay them the cost or less
than cost, which is exactly what we are doing, they are going
to close.
Our teaching hospitals are in a great deal of trouble in
terms of the lack of dollars that are going to the teaching
hospitals and you are going to find that we are going to suffer
greatly in the 21st century if we allow our teaching hospitals
to continue to go down because we cannot cut funds somewhere
else to put it into this vital issue of health care.
And I would say to you, you wonder why home care agencies
are closing in your district? Of course they are closing. We
will not pay them the cost of being in business and they cannot
cost-shift anymore.
So Mr. Chairman, the question here is in my mind, do we
need to put more money into this? Yes, we do. Do we need to
offset that spending somewhere else so we do not charge this
ticket to our grandchildren? Yes, we do. And it would be very
helpful if, on a bipartisan basis, we would be willing to
prioritize our spending and recognize as a Congress that we
have to take this out of other places if we think health care
is a vital interest to the people of this country, which I am
fairly sure, listening to the members here today, they were
told while they were home on August break that yes, it is a
vital interest and no, we do not want our home health closing;
no, we do not want our rural hospital closing.
We are disappointed that providers are dropping out of
Medicare Plus and the answer is not real difficult. We have
overdone it. We need to put more money back into it. And, by
the same token, we do not need to go back to years gone by and
keep adding to the $5.5 trillion debt to push this.
So I hope the members on the other side of the aisle, and
they seem to say so, recognize the importance of this and the
importance of determining where else in this large Federal
budget we must slow down spending there in order to get the
spending level back to the right level in health care.
With that, Mr. Chairman, I will yield back and I thank you
very much for this hearing.
Mr. Bilirakis. I thank Dr. Norwood.
Ms. DeGette.
Ms. DeGette. Thank you, Mr. Chairman. Mr. Chairman, I think
this hearing today is really timely and I appreciate you
holding it. I think that the Balanced Budget Act needs to be
examined to see if it is achieving its intended results in a
lot of areas and I have a couple of specific examples of areas
that I want to talk about today.
I think that the substantive policy changes implemented
have resulted in significant savings and in many ways have
streamlined both Medicare and Medicaid in positive ways. For
example, the Medicare Trust Fund has been strengthened and also
as co-chair of the Congressional Diabetes Caucus, I point to
the positive step of the implementation of critical
preventative health benefits like coverage for blood glucose
test strips for diabetes.
However, the frugality that we have achieved only helps
beneficiaries if it is coupled with policies that ensure those
beneficiaries to have access to the necessary care in the
appropriate setting. And I am hoping today's hearing will shed
some light on the reforms that have helped beneficiary care and
which ones are hurting the very people that they are intended
to help.
And let me give you an example. In an effort to tighten
eligibility rules for home health care, I am concerned that
HCFA has unintentionally prevented beneficiaries from accessing
the services they need. I have a constituent, for example, who
has gone blind from diabetes. Well, we will give her the blood
glucose test strips but the problem is since she is blind, she
cannot measure out the correct dosage of her insulin to prevent
further onset of the complications of the disease.
Now she used to have her home health visits covered by
Medicare when someone came once a week to fill the insulin
syringes that she would need for the whole week. But because
that is the only service she needs--she does not need blood
drawn; she does not need tests done--Medicare no longer covers
these visits.
And so we are really not doing much by denying this benefit
to help this constituent improve her health and keep it solid
as we go along.
The other issue, which several other members have alluded
to, is that the Medicare and Medicaid savings for hospital
costs have been greater than anyone predicted, which has
particularly impacted our Nation's critical safety nets, like
the graduate medical education program and disproportionate
share hospitals.
As a result of these dramatic cuts in payments, hospitals
nationwide are reeling and hospitals in my district are the
same as in Congresswoman Capps' and many other districts.
University Hospital, Colorado's public teaching hospital, has
seen a $6 million loss of revenue this year alone and these
losses are only predicted to grow.
Coincidentally, they were in talking to me about this
yesterday, Mr. Chairman, and they provided me with this chart
which dramatically shows how these losses are going to grow
through the year 2002.
Mr. Chairman, I would ask unanimous consent to include this
chart for the record, if possible.
Mr. Bilirakis. By all means, without objection.
[The chart follows:]
[GRAPHIC] [TIFF OMITTED] T1694.001
[GRAPHIC] [TIFF OMITTED] T1694.002
[GRAPHIC] [TIFF OMITTED] T1694.003
Ms. DeGette. Now University Hospital is putting a plan in
place to reduce the number of resident positions, which will
impact the future number of doctors we have in Colorado just as
our population is growing. And then, as a result of that
cutback, the hospital is being forced to cap indigent care,
which is a step in the wrong direction at a time when the
uninsured numbers are growing at an unprecedented rate.
And so I think these are some of the results of the
balanced budget agreement that have to be reversed.
Mr. Chairman, because of my deep concern about these issues
and because of the need to protect the Nation's safety nets, I
am going to be introducing legislation called the Medicaid
Safety Net Preservation Act of 1999. This legislation
recognizes that if we make further cuts to the safety
hospitals, we are going to have terrible problems.
In the State of Florida, safety net hospitals like Jackson
Memorial in Miami and Tampa General Hospital in Tampa are
facing an 18.8 percent reduction in Medicaid DSH payments
between fiscal year 2000 and 2002.
The bill I am introducing would freeze Medicaid DSH
payments at the fiscal year 2000 level through 2002 to ensure
that the hospitals who serve our most vulnerable populations
may continue to do so. This is only a stop-gap measure and I am
hoping that we can look more broadly, Mr. Chairman, on
equalizing these disproportionate impacts as we move forward
into the next millennium.
Thank you and I will yield back the balance of my time.
Mr. Bilirakis. I thank the gentlelady.
Mr. Deal for an opening statement.
Mr. Deal. Thank you, Mr. Chairman.
I have reviewed the statements here today, I have listened
to the opening statements, and there appears to be one missing
ingredient that has not been addressed and I hope that the
panelists will do so. That is the motivation for the Balanced
Budget Act changes that we made.
My recollection is that the reason that we did that was
that for 30 years since 1965, when Medicare when into place,
the system of FICA withholdings into the trust fund had been
sufficient and, in fact, had accumulated a surplus. And then,
at the end of that 30-year period, suddenly the process began
to reverse itself to the point that in 1997, my recollection is
that the Medicare Trust Fund was expending something in the
neighborhood of $40 million more every day than it was taking
in from the FICA tax, which was its sole funding source for
Medicare Part A, and that that was the motivation for these
changes.
Therefore, if that is the motivation, I think we ought to
ask the question: What will the proposals that we are going to
hear today do in terms of impacting the financial solvency of
the Medicare Trust Fund? We were told in 1997 it had a life
expectancy of only about 4 years and without significant
changes, maybe even shorter than that.
So to talk about proposals to the Balanced Budget Act
changes without understanding the reason for those changes to
begin with and without answering the question of what will
these new proposals do in terms of the solvency of the Medicare
Trust Fund, I think is being disingenuous. It is not addressing
the real concern here.
Now if we are going to continue to move in the direction of
moving proposals out of Medicare Part A into Part B, as we did
with home health care, then we run into the continued criticism
that we are moving it from a dedicated revenue source as its
sole funding source into more of a welfare system, and
everybody says we do no want to move in that direction.
So if that is not where we want to go, then what are we
going to do in terms of the financial solvency of Medicare, the
trust fund and where is that trust fund right now in terms of
is it still continuing to lose, which I think it is, continuing
to drain the trust fund even now, and if we make changes to the
Balanced Budget Act provisions, will it accelerate that
continued draining of the trust fund, and what then will be the
life expectancy of that trust fund with these proposals? I
think that is a challenge that we all have to face and if we do
not understand that as the premise that underlies what was done
in 1997, then I think we have missed the point.
Mr. Chairman, I hate to make an opening statement that
seems somewhat confrontational and then have to leave but I do
have a mark-up in another committee, but I will be back. Thank
you.
Mr. Bilirakis. Thank you, Mr. Deal.
Mr. Barrett for an opening statement.
Mr. Barrett. Thank you, Mr. Chairman.
Like many other members of the committee, during the August
recess I met with providers in my district, virtually all of
whom obviously were unhappy with the direction that we are
headed and are very concerned about the impact of the Balanced
Budget Act on them. I heard from physical therapists; I heard
for occupational therapists, home health care providers,
nursing home executives, hospital executives and physicians.
Every single group that I talked to, I had to bring in sort
of the subject du jour, which is also the subject today of
President Clinton's action, and that is the tax bill, the $792
billion tax cut. And as I explained to each and every one of
those groups, they were, in fact, paying for this tax cut
proposal because just like Willie Sutton robbed banks because
that is where the money was, a lot of the cuts are coming in
health care because that is where the money is.
So for us to sit here today and say well, this is a
problem; we have to make cuts in other areas, makes me question
what planet I am on because I know earlier this year we as a
Congress decided well, we do not want to make cuts in defense
spending; we will spend more money in defense spending than we
agreed to in the Balanced Budget Amendments. We do not want to
make cuts in transportation; in fact, we will spend more money
than we agreed to in the Balanced Budget Act.
So we are going to have these magical cuts that are going
to occur and that are going to allow us to make everybody in
this room happy. I do not think everybody in this room is
stupid and I think people recognize that if we are going to
provide relief for health care providers, that means that we
are going to have to make some basic changes here. That means
all this talk about a tax cut is pure folly because we do not
have a surplus right now. In fact, with the spending that we
have done on the census, on the emergency spending bills, on
defense, on transportation, we have basically gotten rid of the
surplus for this year.
So we are dealing with a situation now where we are going
to have to decide whether we are going to pose for political
holy pictures or whether we are going to deal with health care
in a serious way. And it is my hope that we are going to be
able to work together to fashion some relief for those who need
care; for example, those who have come up against the $1,500
cap, to make sure that people are not hamstrung when they are
moving from a hospital to a nursing home. And I think to do
that is going to take some honest discussion, not only by this
panel and this committee but by all of Congress.
So I hope we are up to that task because I think that this
issue is far too important not just to providers--providers are
big boys and girls and they can basically lobby for themselves
and take care of themselves but I am concerned about that
person who is confined in a home and has someone who comes in
to give them home care and is not going to be able to receive
that home care because of the actions that this Congress has
taken over the last several years.
I hope we have a productive hearing today and with that, I
yield back the balance of my time.
Mr. Bilirakis. I thank the gentleman.
Mr. Shadegg for an opening statement.
Mr. Shadegg. Thank you, Mr. Chairman. I want to commend you
for holding this extremely important hearing.
Although I think in opening statements we are quickly
approaching the point where everything has been said but not
everyone has said it, let me briefly comment that I too, like
many of my colleagues, went home over the August break and met
with various providers--hospital operators, home health care
operators, nursing home facility operators--and heard poignant
stories about the difficulties they are facing.
We clearly have to look at the circumstances that BBA 1997
has created and the numbers speak for themselves. They show
that we have achieved a level of reduction in spending far
beyond that which we originally anticipated. So I commend you
for holding these hearings.
I would like to associate myself with the remarks of Mr.
Greenwood, who said that if, in fact, we overreacted in BBA
1997, I hope we do not sit here 2 years from now in 2001 and
say we then overreacted to that overreaction in 1999.
So I think it is very important that we strike a balance. I
think it is critically important that we ensure that the funds
are there to provide the necessary care for those in America's
facilities and that we ensure that those that operate them have
the financial incentive to continue to do so, and that is an
obligation that we owe to the American people. I think it is a
fiduciary obligation that we owe to the American people.
I look forward to hearing the testimony of the witnesses
and to their educating us as to how we can best solve this
problem and strike what would be an appropriate balance for
providing the kind of health care that needs to be provided.
And with that, Mr. Chairman, I yield back the balance of my
time.
Mr. Bilirakis. I thank the gentleman.
Mr. Bilbray.
Mr. Bilbray. Mr. Chairman, I was not planning on giving an
opening statement but I just want to say, as someone who has
had the privilege, and I think that Ms. Eshoo of California
probably did, too, or the challenge of operating public
facilities, nursing homes, I would just ask us all to consider
the fact that this is not a Democrat or Republican issue.
And I just ask my colleagues, we talk about tax reduction
and tax fairness and the other side can turn around and say
every time the administration goes on a trip they promise
another $100 million for somebody. We can use this as a vehicle
to beat and bash at each other for political advantage, but I
think it is totally not only inappropriate; I think it is
immoral when we talk about we care about this crisis but then
we are going to take the time to take a shot across the aisle.
And I would ask us not to do that. We are in this together.
Like it or not, we are going to be judged by the American
people together, Democrat or Republican. And I think the
challenge here is to find answers rather than finding fault,
and let's move forward.
I yield back, Mr. Chairman.
Mr. Bilirakis. Thank you. Mrs. Cubin.
Mrs. Cubin. Thank you, Mr. Chairman, and thank you for
holding this hearing today.
Undoubtedly we all have heard the same information. In
fact, obviously we have all heard the same information when we
went home and came back with a message from our constituents
and from our health care providers that simply it is not
working.
I think anyone who thought that the Balanced Budget
Amendment would be just fine as it was, that it would not need
some fine-tuning and would not need some adjustment was naive.
And hopefully we will hear from you how we can make some of
those adjustments to solve some of the problems that all of us
are aware of.
The Balanced Budget Amendment, as we all know, was designed
to save money within the Medicare program by slowing the rate
of growth in payments to hospitals and health care providers,
physicians, and so on, and by establishing new payment
methodologies. And while Medicare has saved money as a result
of the BBA, it has also caused some of what I truly believe to
be unintended consequences that are quite negative.
I have heard from so many people in my home State about the
financial burden that has been placed on physicians, hospitals
and health agencies and I want you to understand something
about my State. It is almost 100,000 square miles. It takes
8\1/2\ to 9 hours to drive from corner to corner in my State.
The largest city is 60,000 people. There is another city of
50,000 and then it drops down to one city of 20,000 and then
12,000 and then 3,000, 150.
So when I tell you that what is happening with the
reimbursement schedule and the reimbursement practices now will
close the only health care facilities that there are in
communities for hundreds of miles around, I am not
exaggerating. So we have to do something to stop this.
Now that brings me to another thing that I will be asking
and hoping I can get some information on today and that is I
want someone to justify for me the difference in the
reimbursement. For example, a regular routine office visit in
Wyoming paid to a physician, the reimbursement is approximately
$33. In New York it is $64. A regular routine EKG in Wyoming,
the reimbursement is $20; in New York, $47.
I use New York because I did not have time to get Florida,
Pennsylvania and other highly populated areas, also California.
Gall bladder removal in Wyoming, $461; $601 in New York.
Colonoscopy, $199 in Wyoming, $301 in New York.
Now this is part of the problem that is causing Wyoming
health care providers to leave the State, to close the
institutions that we have.
So in addition to dealing with the methodology, I want
someone to explain to me why these reimbursements are so
different, especially when you take into consideration the
average price home in Jackson Hole, Wyoming is $657,000 and the
commercial property is proportionately as high. Residences are
proportionately as high.
When students graduate from medical school they have the
same loans that they have to pay back. The equipment costs the
same to them, no matter where they practice. They have to pay
employees. The costs are not that different. Please somebody
explain to me why there is such a huge discrepancy in these
reimbursement levels.
Truly these effects and the effects of the BBA are having a
disastrous effect on Wyoming.
I am also concerned, as is Congresswoman Capps, about the
$1,500 cap on rehabilitation services. As a patient who
received extensive physical therapy myself and only because of
that am I walking today, I know that $1,500 can be used up in a
month or less.
So I look forward to understanding why some of these things
are being promoted and I thank the chairman for having the
hearing today.
[The prepared statement of Hon. Barbara Cubin follows:]
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
I would like to thank Chairman Bilirakis for holding this
educational hearing on the implications of the Balanced Budget Act of
1997. Anyone who thought the BBA would not need fine tuning and
adjustment was naive. Hopefully, we will hear how to make some of those
adjustments during our discussion today.
I have heard from so many people all across my home state of
Wyoming regarding the extreme financial burden placed on physicians,
hospitals and home health agencies because of the BBA. While Medicare
has saved money as a result of the BBA, it has also produced, what I
truly believe to be, unintended consequences.
Let me tell you a little about my state of Wyoming and how the
health care system works in a rural area. It takes 8 to 9 hours to
travel from one corner of the state to another. There are hospitals of
minimal size that are hundreds of miles apart that have to serve a
population of 250,000. The few doctors we have serve many Medicare
patients without receiving adequate reimbursement, and are coming
dangerously close to being forced to opt out of the Medicare program.
For example, the reimbursement rate for a regular office visit in
Wyoming is $33 but in New York it is $64; for an EKG in Wyoming it is
$20 but in New York it is $47; for a gallbladder removal in Wyoming it
is $461 but in New York it is $601. Can somebody please explain to me
why that is?
So I'm not exaggerating when I say that this has truly devastating
effects on a rural state like Wyoming that has very different health
care needs. We cannot afford to have health agencies closing and
Medicare beneficiaries losing their providers because Wyoming does not
have an abundance of these health care services.
I'm also concerned about the $1500 annual cap on rehabilitation
services. Patients can easily exhaust this sum on routine therapy in a
few months, and the rest of the year these poor patients are struggling
to make ends meet. Often times, they even have to forgo therapy because
they can't afford it.
I really would like to understand this reimbursement schedule, but
I also know that many people simply do not realize that these rates and
these cuts are very disproportionate between rural and urban
communities.
I look forward to hearing your comments in this regard. Thank you.
Mr. Bilirakis. I thank the gentlelady.
I believe that all of the opening statements finally have
been completed.
Mr. Brown?
Mr. Brown. Mr. Chairman, can I ask unanimous consent to
enter Mr. Dingell's comments in the record and any other member
that has additional comments?
Mr. Bilirakis. Without objection, that will be the case.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Fred Upton, a Representative in Congress
from the State of Michigan
Mr. Chairman, thank you for holding today's hearing. The Balanced
Budget Act made the most sweeping changes in the Medicare program since
its inception. It is vital that we in Congress closely monitor those
changes and their impact on beneficiaries' access to care and the
quality of care they are receiving.
In a sense, the Balanced Budget Act completed--or at least brought
closer to completion--work Congress began back in 1983 with the
enactment of a prospective payment system for Medicare hospital
reimbursement. At that time, we were facing a crisis. The Medicare
hospital trust fund was being drained dry by double-digit growth in
spending. We had to act to save it. When we looked at the roots of the
crisis, we realized that the way we were paying for hospital services
was a very large part of the problem. We were paying on a per-service
basis--the more admissions, the more services, and the longer the stay,
the higher the reimbursement. We replaced this inherently inflationary
system that did nothing to encourage efficiency with a prospective
payment system. It took a lot of getting used to, on the part of
hospitals and beneficiaries alike. It needed some adjustments,
particularly for rural providers. And we also found out rather quickly
that we needed to have in place a system to ensure that beneficiaries
weren't being discharged prematurely or otherwise receiving less-than-
appropriate, high-quality care. But the system fundamentally worked. We
were ``buying a lot smarter'' when it came to inpatient care, and the
trust fund crisis was averted.
In 1997, we were again facing a crisis. The trust fund was again
racing toward empty. Home health care, skilled nursing care, and
outpatient costs were exploding. We had to act to rein in these costs--
and to address one of the major factors fueling this explosion--again,
cost-based reimbursement systems that rewarded over-utilization and
outright fraud and abuse. We replaced these with prospective systems,
which are now being phased in, and some interim provisions until the
systems were fully operational.
I think we did the right thing in 1997. But just as we learned in
the 1980s as the hospital prospective payment system was implemented,
we need to be very vigilant in ensuring that these new systems do not
adversely affect beneficiaries' access to care and the quality of the
care they receive. And that means being sensitive, as well, to what
Medicare hospitals, nursing homes, home health agencies, therapists,
and others are telling us about the impact the new systems are having
on them. We need to be open to suggestions for refinements.
______
Prepared Statement of Hon. Ted Strickland, a Representative in Congress
from the State of Ohio
Mr. Chairman, I want to thank you for convening this hearing today
so that we might learn more about the effects of the Balanced Budget
Act of 1997 on patient care and access. I am sure that every Member of
Congress has heard concerns about the BBA from constituents and health
care providers.
In my rural Ohio district, which is medically underserved, access
to adequate care is a great concern. In the past year, the communities
I represent have lost ground in their struggle to provide care,
especially for those with little or no insurance. Home health agencies
have closed and one of the largest communities in southern Ohio has
lost the supervising physician who provided family practice care for
the uninsured and underinsured. The rural health clinics are fearing
that they will have to use the grant funds that are intended to help
them treat the uninsured to make up for the losses in Medicaid
reimbursements. I have visited with each of the hospital administrators
in my district, who tell me that their hospitals are losing money at
such an alarming rate that they will soon be forced to reduce services
like hospice, home health care and skilled nursing care. Many of these
hardships are a direct result of changes made in the Balanced Budget
Act of 1997, including caps on DSH payments and the implementation of
the inpatient and outpatient prospective payment systems.
Clearly, the hospitals, clinics and home health agencies in my
district are being affected by changes that are not part of the
Medicare fee-for-service program. In addition to fee-for-service
changes, they are adjusting for the BBA's changes to Medicare+Choice
and Medicaid. So the emergencies in funding they face in many cases
cannot be traced to a single change in statute. Rather it is the
confluence of BBA changes that is forcing health care providers to
reduce services or close their doors.
In rural areas like southern Ohio, the loss of a single provider
can be devastating to the community . Our duty is to work with HCFA to
provide relief to these providers so that they can continue to care for
our constituents in an adequate and efficient manner. This relief needs
to be delivered quickly, before we see an even greater drop off in
services and providers.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
I am pleased that Chairman Bilirakis has called this hearing to
assess the overall effects of the 1997 Balanced Budget Act on the
Medicare program and patient care. In 1997, the Republican-led Congress
cut $115 billion from the Medicare program and made substantial changes
in provider payment policies to do so. While all of the provisions in
the Balanced Budget Act are not yet fully implemented, the Health Care
Financing Administration has done a commendable job in implementing the
more than half of the 300 or so provisions that we passed two years
ago.
At this juncture in implementation many of us are hearing
complaints about certain provisions in the BBA. Some of the BBA
policies were necessary improvements in the program to improve
beneficiary care, and some were initiatives to reduce fraud and abuse.
However, in some areas, the BBA may be having unintended adverse
consequences for the Medicare program. Changes of such great magnitude
do not come easily, without some degree of market upheaval and
complications for those involved.
I have heard a great many protestations from provider
organizations, and good friends in the provider community back home,
that the Balanced Budget Act is having unintended effects on their
ability to continue to serve seniors and maintain a viable practice. I
am very concerned about these reports, and I am pleased to see that
this Committee is taking an opportunity to explore some of these
issues. Because we must preserve the integrity of the Medicare program
for those who depend on it, America's seniors and disabled, the
Committee should hear from beneficiary groups on this matter in the
future.
This hearing is a first step in identifying potential problems that
could have a negative impact on patient care. As a Congress, we must
work together in a bipartisan manner to rectify any troublesome issues
that arise.
I welcome the testimony of today's witnesses and I look forward to
future Committee action on this topic.
Mr. Bilirakis. Panel one consists of Mr. Mike Hash, Deputy
Administrator and Acting Administrator of Health Care Financing
Administration.
Michael, you have always been considered a member of this
family up here as you worked on this committee for quite some
time. You have sat there and heard all these opening
statements. I know we are all on pins and needles just awaiting
your responses to all of these.
Please proceed, sir. You have 10 minutes.
STATEMENT OF MICHAEL HASH, DEPUTY ADMINISTRATOR, HEALTH CARE
FINANCING ADMINISTRATION
Mr. Hash. Thank you, Mr. Chairman. Chairman Bilirakis,
Congressman Brown and distinguished members of the Health and
Environment Subcommittee, I want to thank you for inviting us
to this very critical and important hearing and for the careful
and thoughtful considerations that have been a part of
everyone's opening statements.
While I was not at home in your districts during the month
of August, I, too, heard the same messages that you have been
hearing because many of the folks that you have been hearing
from have been coming to see us and importantly, sharing their
concerns and experiences with the BBA and that is a significant
part of the effort to evaluate all that we have tried to
undertake.
As you all know, the BBA includes reforms that are critical
to strengthening and protecting the Medicare program for the
future, including, of course, as has been noted, important new
preventive benefits and important changes in the way in which
we pay for services under the Medicare program.
But with changes of the magnitude of those included in the
BBA, some adjustments are clearly inevitable. We are concerned
about the reports concerning the BBA changes, particularly as
they may be related to problems of access or quality of care
with respect to the services to which Medicare beneficiaries
are entitled. That is why we have established a comprehensive
plan to work with providers, beneficiaries and with the
Congress to monitor the impact of the BBA.
The President has acknowledged that the BBA also went too
far and that is, in large part, the basis of his comprehensive
Medicare reform plan that specifically has set aside a quality
assurance fund in the amount of $7.5 billion over 10 years to
smooth out the changes in the BBA in the remaining years that
the BBA is effective for the purpose of ensuring that quality
and access to Medicare services is not compromised.
We are working with the Congress and others to identify
appropriate and prudent legislative solutions. We have also
taken a series, and some of you have alluded to this--Mr.
Stupak, I believe, and others--that we have taken a series of
administrative actions on our own initiative to help hospitals,
home health agencies and other providers adjust to the changes
that came along with the BBA.
For example, we have delayed the extension of the hospital
inpatient transfer policy beyond the 10 DRGs that were required
in the BBA for an additional 2 years.
Second, we are considering, in our regulatory work,
delaying the volume control mechanism that again was included
in the BBA with respect to the new hospital outpatient
prospective payment system for the first few years of that
system. We are further considering a 3-year transition to the
new hospital outpatient payment system by making budget-neutral
adjustments to increase payments to hospitals that otherwise
would receive large payment reductions.
And let me just say, parenthetically, we have looked at the
impact data as well and we recognize that low-volume rural
hospitals, low-volume urban hospitals, teaching hospitals and
cancer hospitals are projected, under our proposed rule for
hospital outpatient payments to be significantly affected.
We are also proposing to use the same wage index that we
now use for calculating or adjusting the inpatient PPS rates
for the outpatient prospective payment rate.
Finally, we are, I think, making it easier--that is our
intention certainly--for rural hospitals, whose payments are
now based on lower rural area average wages, to be qualified
for reassignment to areas where they can benefit from a wage
index in an adjacent metropolitan area and thus get higher
reimbursements under the Medicare program.
Finally, we also have tried to provide some assistance
within our discretion for home health agencies. We have
increased the terms of our extended repayment plans for home
health agencies that have incurred overpayments. We have, in
fact, for home health agencies delayed implementation of the
surety bond requirement and have modified that requirement to
be based not on 15 percent of their Medicare revenues but,
rather, a flat $50,000 surety bond.
And, finally, with respect to home health agencies, we
have, with our discretion, eliminated a procedure that we refer
to as ``sequential billing,'' which was an approach we took in
order to be sure that we were properly allocating Part A and
Part B expenditures for home health, given the changes the BBA
made by shifting some of the coverage from Part A to Part B.
But as a result of that sequential billing policy, we
believe many home health agencies experienced cash-flow
problems and therefore as of July 1, that sequential billing
policy is no longer in place. And we have delayed the
implementation of another BBA provision relating to the
reporting of home health visits in 15-minute increments, again
recognizing that new systems and new requirements to actually
do this, on the part of home health agencies, need to be taken
into account. So, we are taking a slower approach to that.
And obviously we are continuing to look for further
opportunities to exercise discretion within the intent and
certainly the letter of the law in the BBA.
And with respect to our monitoring efforts, as you all know
and you can see from our prepared testimony, we have been
working with the General Accounting Office and with our own
Inspector General at HHS and with MedPAC and others to gather
information about BBA impacts, particularly with respect to an
issue that has been mentioned here a lot today, the impact of
the BBA limitations on the provision of outpatient
rehabilitation therapy services, the $1,500 cap.
Several reports that we have assembled have indicated that
the therapy caps have not allowed Medicare beneficiaries with
multiple sclerosis or strokes or certain other serious
diagnoses to get the care that they need in terms of
rehabilitation therapy services.
There are also issues with respect to the BBA impact on
skilled nursing facility payment, particularly in the case of
patients that we refer to as high-acuity patients, those
patients who require a significant and above-average level of
services to meet their health care needs.
We are conducting research on how we can refine the
prospective payment system for skilled nursing facilities in a
way that patients who fall into the high-acuity category, that
the payments for them will be enough to ensure that they are
getting the kind of care their condition requires.
Obviously we are continuing our monitoring efforts. I think
it is fair to say that none of us is happy with the extent of
data that we have about what is really going on currently in
the health care provider world. Most of our data sources, in
fact, lag significantly. So, it is difficult in the short-term
to get a comprehensive assessment of exactly what the financial
impacts are in the current timeframe.
But we are, and I want to underscore this, we are anxious
and ready to sit down with you and your staffs and with other
Members of Congress to begin developing specific proposals as
part of a comprehensive Medicare reform proposal, as the
President has put forward. This would include, as a part of, I
think, our consideration of smoothing out the BBA, dealing with
the long-term financial solvency of the Medicare program and,
in our view, that means dedicating a substantial portion of the
estimated surplus to the Medicare program and importantly,
adding a much-needed, very important prescription drug benefit
to the basic Medicare benefit package.
And frankly, it is hard to see, in our judgment, where the
necessary resources would come from to adjust the kinds of BBA
provisions that we have been talking about this morning without
a comprehensive reform such as that put forward by the
President.
Mr. Chairman, we look forward to working with you in the
cooperative bipartisan spirit that many of the members of your
subcommittee have expressed this morning. I thank you for
holding this hearing and giving us the opportunity to join with
you in exploring these important issues. I can assure you that
we will be paying careful attention and taking close notes with
respect to the kinds of concerns that are raised by subsequent
witnesses before you today. Thank you and I would be happy to
respond to any questions you and other members of the committee
may have.
[The prepared statement of Michael Hash follows:]
Prepared Statement of Michael Hash, Deputy Administrator, Health Care
Financing Administration
Chairman Bilirakis, Congressman Brown, distinguished Subcommittee
members, thank you for inviting us to discuss possible necessary
adjustments to the Balanced Budget Act Medicare fee-for-service
reforms. The BBA includes important new preventive benefits and payment
system reforms that promote access, efficiency, and prudent use of
taxpayer dollars. These reforms are critical to strengthening and
protecting Medicare for the future. The Medicare Trust Fund, which was
projected to be insolvent by 1999 when President Clinton took office,
is now projected to be solvent until 2015.
Coverage of new preventive health benefits is among the BBA's most
significant impacts on patient care. We have:
<bullet> expanded coverage for test strips and education programs to
help diabetics control their disease;
<bullet> begun covering bone density measurement for beneficiaries at
risk of osteoporosis;
<bullet> begun covering several colorectal cancer screening tests;
<bullet> expanded preventive benefits for women so Medicare now covers
a screening pap smear, pelvic exam and clinical breast exam
every three years for most women, and every year for women at
high risk for cervical or vaginal cancer; and,
<bullet> begun covering annual screening mammograms for women age 40
and over, and a one-time initial, or baseline, mammogram for
women ages 35-39, paying for these tests whether or not
beneficiaries have met their annual deductibles.
And, as of January 1, 2000, we will begin to cover prostate
screening, as well. These important additions to the Medicare benefits
package will have a substantial impact on patient care by helping to
prevent problems and identify them at earlier, more treatable stages.
The BBA also made substantial changes to the way Medicare
reimburses providers in the fee-for-service program. We have made solid
progress in implementing these payment reforms. For example, we have:
<bullet> modified inpatient hospital payment rules;
<bullet> established a prospective per diem payment system for skilled
nursing facilities to encourage facilities to provide care that
is both efficient and appropriate;
<bullet> refined the physician payment system, as called for in the
BBA, to more accurately reflect practice expenses for primary
and specialty care physicians;
<bullet> initiated the development of prospective payment systems for
home health agencies, outpatient hospital care, and
rehabilitation hospitals that will be implemented once the Year
2000 computer challenge has been addressed; and,
<bullet> begun implementing an important test of whether market
competition can help Medicare and its beneficiaries save money
on durable medical equipment and supplies.
We have fully implemented the majority of the BBA's more than 300
provisions affecting our programs, including the Medicare+Choice
program. While the statute generally prescribes in detail the changes
we are required to make, we are committed to exercising the maximum
flexibility within our limited discretion in our implementation of
these provisions.
It is clear that the BBA is succeeding in promoting efficiency,
slowing growth of Medicare expenditures, and extending the life of the
Medicare Trust Fund. However, according to both the HCFA actuaries and
the Congressional Budget Office, the BBA is only one factor
contributing to changes in Medicare spending. Low inflation from a
strong economy is having an impact on total spending. Slower claims
processing during the transition to new payment systems is contributing
to a temporary slow-down in overall spending. And we have made
substantial strides in fighting fraud, waste and abuse that have
significantly decreased the amount of improper payments. For the first
time ever, the hospital case mix index declined last year due to
efforts to stop ``upcoding,'' or billing for more serious diagnoses
than patients actually have in order to obtain higher reimbursement.
Change of this magnitude always requires adjustment. It is not
surprising that some market corrections would result from such
significant legislation. We are proactively monitoring the impact of
the BBA to ensure that beneficiary access to covered services is not
compromised. We are evaluating this information to assess the impact of
BBA changes on beneficiaries and to determine what changes may need to
be made to ensure continued access to quality care.
Thus far, our monitoring reveals evidence of isolated but
significant problems. For example, there is reason to be concerned that
some beneficiaries are not getting necessary care because of the BBA's
$1500 caps on certain outpatient rehabilitation therapies. We want to
continue working with beneficiaries, providers, and Congress to closely
monitor the situation, evaluate any evidence of problems in access to
quality care, and develop appropriate, fiscally responsible solutions.
Because of our concerns, the President's Medicare reform plan sets
aside $7.5 billion from fiscal 2000 to fiscal 2009 to smooth out
implementation of BBA payment reforms that may be adversely affecting
beneficiary access to high quality care. Where there is credible
evidence that adjustments are necessary to protect access to care, we
want to work with the Congress to make appropriate adjustments. The
President's reform plan also dedicates a portion of the budget surplus
to Medicare. This will help prevent excessive cuts in provider payment
that otherwise would be necessary in the future as Medicare enrollment
is expected to double over the next 30 years, and increased
efficiencies alone will not be able to cover the increased costs.
The President's plan also includes administrative actions to assure
a smooth implementation process, and we are continuing to explore other
actions. Those already underway address several key areas of concern:
<bullet> Inpatient hospital transfers. The BBA requires the Secretary
to reduce payments to hospitals when they transfer patients to
another hospital or unit, skilled nursing facility or home
health agency for care that is supposed to be included in acute
care payment rates for ten diagnoses. It also authorizes HCFA
to extend this ``transfer policy'' to additional diagnoses
after October 1, 2000. To minimize the impact on hospitals, we
are delaying extension of the transfer policy to additional
diagnoses for two years.
<bullet> Hospital outpatient payments. The BBA requires Medicare to
begin paying for hospital outpatient care under a prospective
payment system, similar to what is used to pay for hospital
inpatient care. To help all hospitals with the transition to
outpatient prospective payment, we are considering delaying a
``volume control mechanism'' for the first few years of the new
payment system. The law requires Medicare to develop such a
mechanism because prospective payment includes incentives that
can lead to unnecessary increases in the volume of covered
services. The proposed prospective payment rule presented a
variety of options for controlling volume and solicited
comments on these options. Delaying their implementation would
provide an adjustment period for providers as they become
accustomed to the new system.
We also are considering implementing a three-year transition to
this new PPS by making budget-neutral adjustments to increase
payments to hospitals that would otherwise receive large
payment reductions such as low-volume rural and urban
hospitals, teaching hospitals, and cancer hospitals. Without
these budget-neutral adjustments, these hospitals could
experience large reductions in payment under the outpatient
prospective payment system.
And, to help hospitals under the outpatient prospective payment
system, we included a proposal in the proposed rule to use the
same wage index for calculating rates that is used to calculate
inpatient prospective payment rates. This index would take into
account the effect of hospital reclassifications and
redesignations. For all of these outpatient department reform
options, the rulemaking process precludes any definitive
statement on administrative actions until after the
implementing rule is published.
<bullet> Rural hospital reclassification. Hospital payments are based
in part on average wages where the hospital is located. We are
making it easier for rural hospitals whose payments now are
based on lower, rural area average wages to be reclassified and
receive payments based on higher average wages in nearby urban
areas and thus get higher reimbursement. Right now, facilities
can get such reclassifications if the wages they pay their
employees are at least 108 percent of average wages in their
rural area, and at least 84 percent of average wages in a
nearby urban area. We are changing those average wage threshold
percentages so more hospitals can be reclassified.
<bullet> Home health. The BBA significantly reformed payment and other
rules for home health agencies. We are taking several new steps
to help agencies adapt to these changes. We are increasing the
time for repayment of overpayments related to the interim
payment system from one year to three years, with one year
interest free. Currently, home health agencies are provided
with one year of interest free extended repayment schedules. We
are postponing the requirement for surety bonds until October
1, 2000, when we will implement the new home health prospective
payment system. This will help ensure that overpayments related
to the interim payment system will not be an obstacle to
agencies obtaining surety bonds.
We also are following the recommendation of the General
Accounting Office by requiring all agencies to obtain bonds of
only $50,000, not 15 percent of annual agency Medicare revenues
as was proposed earlier. We are eliminating the sequential
billing rule as of July 1, 1999. Many home health agencies had
expressed concern about the impact of the implementation of
this requirement on their cash flows and this measure should
alleviate these problems to a large degree. And we are phasing-
in our instructions implementing the requirement that home
health agencies report their services in 15-minute increments
in response to concerns that the demands of Y2K compliance were
competing with agency efforts to implement this BBA provisions.
Allowing this degree of flexibility for a temporary period will
prevent agency cash flow problems or returned claims.
It is important to note that the BBA is only one factor
contributing to challenges providers face in the rapidly evolving
health care market place. Efforts to pay correctly and promote
efficiency may mean that Medicare no longer makes up for losses or
inefficiencies elsewhere. We are concerned about reports on the
financial conditions of some individual and chain providers.
It is essential that we try to delineate the BBA's impact from the
effects of excess capacity, discounted rates to other payers,
aggressive competition, imprudent business decisions, and other
practices and market factors not caused by the BBA. And, as is
underscored by the title of this hearing, it is essential that we focus
on the impact on beneficiary access to high quality patient care.
Monitoring Access
These payment reforms have created change for many of our
providers. As mentioned above, our first and foremost concern continues
to be the effect of policy changes on beneficiaries' access to
affordable, quality health care. We are proactively monitoring the
impact of the BBA to ensure that beneficiary access to covered services
is not compromised. We are systematically gathering data several
sources to look for objective information and evidence of the impact of
BBA changes on access to quality care, including:
<bullet> beneficiary advocacy groups;
<bullet> healths plans and providers;
<bullet> Area Agencies on Aging;
<bullet> State Health Insurance Assistance Programs;
<bullet> claims processing contractors;
<bullet> State health officials; and
<bullet> media reports.
We also are examining information from the Securities and Exchange
Commission and Wall Street analysts on leading publicly traded health
care corporations. This can help us understand trends and Medicare's
role in net income, revenues and expenses, as well as provide
indicators of liquidity and leverage, occupancy rates, states-of-
operation, lines of business exited or sold by the company, and other
costs which may be related to discontinued operations.
We are examining Census Bureau data, which allow us to gauge the
importance of Medicare in each health service industry, looking at
financial trends in revenue sources by major service sectors, and
tracking margin trends for tax-exempt providers.
We are monitoring the Bureau of Labor Statistics monthly employment
statistics for employment trends in different parts of the health care
industry. Such data show, for example, that the total number of hours
worked by employees of independent home health agencies is at about the
same level as in 1996. That provides a more useful indicator of actual
home health care usage after the BBA than statistics on the number of
agency closures and mergers. The data also show that nursing homes may
be slightly reducing the number of employees and the hours that they
work.
The HHS Inspector General's office has interviewed hospital
discharge planners and nursing home administrators about the BBA's
impact on patient care. They found that the proportion of beneficiaries
discharged to skilled nursing facilities is unchanged from 1998.
Hospital lengths of stay have not increased. Less than 1 percent of
nursing home administrators say the prospective payment system is
causing access to care problems. However, about one in five discharge
planners say it takes more time to place Medicare patients in nursing
homes, while only 1 percent say it is ``very difficult'' to make such
placements.
The Inspector General's Office also found that both nursing home
administrators and hospital discharge planners say nursing facilities
are requesting more information before accepting patients. About half
of the nursing home administrators say they are less likely to accept
patients requiring expensive supplies or services such as ventilators
or expensive medications, about half also say they are more likely to
admit patients who require special rehabilitation services such as
physical therapy following joint replacement surgery.
The Inspector General's office also has agreed to interview
discharge planners about access to home health care following BBA
payment reforms, and the impact of the $1500 caps on outpatient
therapy.
Specific BBA Provisions
Outpatient Rehabilitation Therapy: The BBA imposed $1500 caps on
the amount of outpatient rehabilitation therapy services that can be
reimbursed, except in hospital outpatient clinics. However, these caps
are not based on severity of illness or care needs, and they appear to
be insufficient to cover necessary care for many beneficiaries.
Beneficiary groups are reporting many instances of problems with this
cap, and we are very concerned about their adverse impact, particularly
on individuals in nursing homes. As mentioned above, our HHS Inspector
General colleagues have agreed to study this problem. We are providing
data to the Medicare Payment Advisory Commission so it can analyze
patterns of therapy service usage. And we will continue to work with
Congress and others to determine what adjustments to the cap should be
made.
Skilled Nursing Facilities: We implemented the new skilled nursing
facility prospective payment system called for in the BBA on July 1,
1998. The old payment system was based on actual costs, subject to
certain limits, and included no incentives to provide care efficiently.
The new system uses average prices adjusted for each patient's clinical
condition and care needs, as well as geographic variation in wages. It
creates incentives to provide care more efficiently by relating
payments to patient need, and enables Medicare to be a more prudent
purchaser of these services.
The BBA mandated a per diem prospective payment system covering all
routine, ancillary, and capital costs related to covered services
provided to beneficiaries under Medicare Part A. The law requires use
of 1995 costs as the base year, and implementation by July 1, 1998 with
a three year transition blending facility-specific costs and
prospective rates. It did not allow for exceptions to the transition,
carving out of any service, or creation of an outlier policy. We are
carefully reviewing the possibility of making administrative changes to
the PPS.
We held a town hall meeting earlier this year to hear a broad range
of skilled nursing facility concerns, and we continue to meet with
provider and beneficiary representatives. There are concerns that the
prospective payment system does not adequately reflect the costs of
non-therapy ancillaries such as drugs for high acuity patients.
We are conducting research that will serve as the basis for
refinements to the resource utilization groups that we expect to
implement next year. We expect to have the research completed by the
end of the year and to then develop refinements that we will be able to
implement next October. Under the statute, we have the authority to
refine these groups and redistribute money across categories in a
budget neutral manner. We do not have discretion under the law to
increase the overall level of payments to skilled nursing facilities.
We fully expect that we will need to periodically evaluate the system
to ensure that it appropriately reflects changes in both care practice
and the Medicare population.
Home Health: The BBA closed loopholes that had invited fraud, waste
and abuse. For example, it stopped the practice of billing for care
delivered in low cost, rural areas from urban offices at high urban-
area rates. It tightened eligibility rules so patients who only need
blood drawn no longer qualify for the entire range of home health
services. And it created an interim payment system to be used while we
develop a prospective payment system. We expect to have the prospective
payment system in place by the October 1, 2000 statutory deadline. We
expect to publish a proposed regulation this fall so we can begin
receiving and evaluating public comments, and publish a final rule in
July 2000.
The interim payment system is a first step toward giving home
health agencies incentives to provide care efficiently. Before the BBA,
reimbursement was based on the costs they incurred in providing care,
subject to a per visit limit, and this encouraged agencies to provide
more visits and to increase costs up to the limits. The interim system
includes a new, aggregate per beneficiary limit designed to provide
incentives for efficiency that will be continued under the episode-
based prospective payment system.
Last year Congress increased the cost limits in an effort to help
agencies during the transition to prospective payment. We are also
taking steps to help agencies adjust to these changes, and in March we
held a town hall meeting to hear directly from home health providers
about their concerns. We are increasing the time for repayment of
overpayments related to the interim payment system to three years, with
one year interest free. And, effective July 1, we ended the sequential
billing policy that had raised cash flow concerns for some agencies.
Sequential billing was designed to ensure proper allocation of home
health expenditures between Part A and Part B that is required by
changes to financing of the benefit included in the BBA. We have
determined we can accomplish this allocation through other means.
At the same time, we are implementing the Outcome and Assessment
Information Set (OASIS). OASIS fulfills a statutory mandate for a
``standardized, reproducible'' home care assessment instrument. It will
help home health agencies determine what care patients need. It will
help improve the quality of care. And it is essential for accurate
payment under prospective payment.
To date, evaluations by us and the GAO have not found that reduced
home health spending is causing significant quality or access problems.
However, we have heard serious reports from beneficiary groups, our
regional offices, and others regarding home health agencies that have
inappropriately denied or curtailed care and incorrectly told
beneficiaries that they are not eligible for continuing services. This
may result from a misunderstanding of the new incentives to provide
care efficiently, or from efforts to ``cherry pick'' low cost patients
and game the system. The Congressional Budget Office attributes some of
the lower health spending to the fact that agencies are incorrectly
treating the new aggregate per beneficiary limit as though it applies
to each individual patient.
Recognizing this, we have therefore provided home health agencies
with guidance on the new incentives and their obligation to serve all
beneficiaries equitably. We have instructed our claims processing
contractors to work with agencies to further help them understand how
the limits work. Because home health beneficiaries are among the most
vulnerable, we are continuing ongoing detailed monitoring of
beneficiary access and agency closures. And, as mentioned above, we
have taken several administrative steps to help home health agencies
adjust to BBA changes, such as extending the time for them to repay
overpayments.
Hospitals: We have implemented the bulk of the inpatient hospital-
related changes included in the BBA in updated regulations. We have
implemented substantial refinements to hospital Graduate Medical
Education payments and policy to encourage training of primary care
physicians, promote training in ambulatory and managed care where
beneficiaries are receiving more and more services, curtail increases
in the number of residents, and slow the rate of increase in spending.
We have implemented provisions designed to strengthen rural health care
systems. We have carved out graduate medical education payments from
payments to managed care plans and instead are paying them directly to
teaching hospitals (and are proposing in the President's Medicare
reform plan to similarly carve out disproportionate share hospital
payments).
The BBA also called for a prospective payment system for outpatient
care, which we expect to implement next year. The outpatient
prospective payment system will include a gradual correction to the old
payment system in which beneficiaries were paying their 20 percent
copayment based on hospital charges, rather than on Medicare payment
rates. Regrettably, implementation of the prospective payment system as
originally scheduled would have required numerous complex systems
changes that would have substantially jeopardized our Year 2000
efforts. We are working to implement this system as quickly as the Year
2000 challenge allows. We issued a Notice of Proposed Rule Making in
September 1998 outlining plans for the new system so that hospitals and
others can begin providing comments and suggestions. We are actively
reviewing all of the comments from the industry and other interested
parties that we received during the comment period, which we extended
until July 30.
We are focusing most of our continuing work on rural, inner city,
cancer, and teaching hospitals because our analysis suggests that the
outpatient prospective payment system will have a disproportionate
impact on these facilities. We are reviewing the many comments we have
received on the proposed regulation and we are continuing to develop
modifications to the system for inclusion in the final rule.
In addition to our work on the outpatient prospective payment
system, we are proactively monitoring the impact of all Medicare
payment changes on hospitals.
Physicians: As directed by the BBA, we are on track in implementing
the resource-based system for practice expenses under the physician fee
schedule, with a transition to full implementation by 2002 in a budget-
neutral fashion that will raise payment for some physicians and lower
it for others. The methodology we used addresses many concerns raised
by physicians and meets the BBA requirements. We fully expect to update
and refine the practice expense relative value units in our annual
regulations revising the Medicare fee schedule. We included the BBA-
mandated resource-based system for malpractice relative value units in
this year's proposed rule. We welcome and encourage the ongoing
contributions of the medical community to this process, and we will
continue to monitor beneficiary access to care and utilization of
services as the new system is fully implemented.
The President's fiscal 2000 budget contains a legislative proposal
for a budget-neutral technical fix to ensure the BBA's sustainable
growth rate (SGR) for physician payment. Medicare payments for
physician services are annually updated for inflation and adjusted by
comparing actual physician spending to a national target for physician
spending. The BBA replaced the former physician spending target rate of
growth, the Medicare Volume Performance Standard, with the SGR. The SGR
takes into account price changes, fee-for-service enrollment changes,
real gross domestic product per capita, and changes in law or
regulation affecting the baseline.
After BBA was enacted, HCFA actuaries discovered that the SGR
system would result in unreasonable year-to-year fluctuations. Also,
the SGR target cannot be revised to account for new data.
conclusion
The BBA made important changes to the fee-for-service Medicare
program to strengthen and protect it for the future. These changes,
along with a strong economy and our increased efforts to combat fraud,
waste, and abuse, have extended the life of the Trust Fund until 2015.
With changes of the magnitude encompassed in the BBA, some issues have
arisen that may require adjustment and fine tuning. The President's
Medicare reform plan sets aside $7.5 billion to smooth out
implementation of BBA reforms. It dedicates a portion of the budget
surplus to Medicare, which will help protect against excessive provider
payment reductions in the future as Medicare enrollment doubles over
the next 30 years, and increased efficiencies alone will not be able to
cover the increased costs. The President's plan also includes
administrative adjustments to help in the transition to new payment
systems.
It is not surprising that necessary market corrections would result
from such significant legislation. As always, we remain concerned about
the effect of policy changes on beneficiaries' access to affordable,
quality health care. We are proactively monitoring the impact of the
BBA to ensure that beneficiary access to covered services is not
compromised. We welcome the opportunity to look at any new information
regarding beneficiary access to quality care. We are committed to
continuing to look at refinements to the BBA that are within our
administrative authority. We look forward to continuing to work with
this Committee to identify concerns, and we will keep you up to date on
the status our of implementation of the BBA.
The President is committed to working with Congress to enact
bipartisan Medicare reform this year that includes more competition in
the program, a long over-due prescription drug benefit that is
available and affordable for all beneficiaries, and that dedicates a
significant portion of the budget surplus to Medicare, and sets aside
funding specifically for smoothing out the transition to BBA payment
reforms.
I thank you for holding this hearing, and I am happy to answer your
questions.
Mr. Bilirakis. Thank you, Michael. Thank you, Mr.
Administrator. And I also want to thank you for having members
of your staff stay after your testimony. I know you have to go.
In fact, we have run later than we expected in the opening
statements and I appreciate your patience in that regard.
And we will get together. I appreciate your offer. I know
it was not necessary because we have sat around a table in the
past and tried to work things out and hopefully we can do that
on a bipartisan basis. I have already talked to Mr. Brown and
hopefully we can do that sooner rather than later.
You say that you are committed to exercising the maximum
flexibility--I am putting words in your mouth, I suppose--
within your limited discretion to implement the provisions of
BBA 1997. There has been, of course, a lot of controversy
around what you, HCFA, can do administratively and what would
require a legislative fix. I have always felt that handling
things administratively, without going into legislative fixes,
is certainly the best way to go.
Hopefully, after taking notes here on some of these
comments and the questioning that takes place, your personnel
will get together with you and hopefully you can furnish in
writing, possibly at the gathering that we will have, an idea
of some of the things that you can do through administrative
fixes.
And I appreciate the fact that there has to be an
admission--maybe that is the wrong word--that a fix is
necessary. In other words, there is something wrong, whether it
is the BBA specifically or whether it was the interpretation of
BBA. We have talked about that in the past and certainly there
has to be an acknowledgement that fixes are necessary because
there is a wrong there somewhere.
So I would appreciate it if you would listen to all of
these things through your staff and address them and we can get
these things worked out.
Mr. Hash. Mr. Chairman, in relation to the request from
Chairman Bliley, we will certainly furnish the committee our
view of those areas that are within the discretion of the
executive branch to have flexibility, and those areas in which
we believe statutory provisions are at the root of the issue
and need to be addressed.
Mr. Bilirakis. Yes. I guess we are talking here now--would
it be better if we waited until we got together with everybody
to find out? Some of the areas of concern we will not have an
opportunity to address in a formal hearing like this. So would
you suggest you might do that prior to that gathering? What do
you think?
Mr. Hash. I believe we would be prepared to furnish--as you
know, Mr. Chairman, this is, as you pointed out, not a new
subject and we have been spending a lot of time, both within
our own policy deliberations and also in consultation with the
department's legal counsel, to investigate thoroughly those
areas of the statute where discretion was given.
I do not have to tell you, the BBA was, I think in most
people's judgment, extraordinarily specific and prescriptive in
its statutory provisions. In many areas, I believe that we do
not have any discretion on the executive side to modify what is
very clear and direct and explicit in the statute.
And because we have spent a lot of time parsing that
question, we are prepared to--in fact, many of the things I
just went through in my opening statement reflecting steps we
have taken in the hospital area, in the SNF area, in the home
health area, are, in fact, a reflection of the judgments we
have made about the flexibility that we have.
Mr. Bilirakis. Well, I tend to agree. For instance, you
have interpreted the outpatient statutory language in such a
way that hospital outpatient payments are $900 million less per
year or $4.5 billion over 5 years. This is due, I think you
would agree, to your interpretation of the beneficiary
coinsurance issue. And yet 253 members of the House, including
23 members of this committee and 77 members of the Senate, have
said through communications with you that this is not what
Congress intended.
So I do not know that I am asking you to respond to that at
this point in time or whether we might be able to work this out
later on.
Mr. Hash. This is one of the issues, Mr. Chairman, which we
have under active review now. We have been looking carefully
and thoroughly at both the legislative history and the
statutory provisions with respect to the outpatient hospital
prospective payment system and we have asked the general
counsel at HHS to give us advice about the extent to which we
do have flexibility with regard to the interpretation of how we
calculate those prospective rates, the conversion factor and so
forth in the setting of the outpatient coinsurance amounts.
We want to be responsive where we can. We have not come to
a complete conclusion of that review, so that is an issue that
we are actively reviewing right now.
Mr. Bilirakis. Then I am going to yield to Mr. Brown in a
moment. I just would want to alert you to the interim practice
expense values--regarding cardiac surgery, etc.--which were
done a while back and apparently HCFA is now issuing a new rule
that is printed in the Federal Register. Not going into the
merits of that or anything at this point in time but I would
just really alert you to the fact that we probably would
discuss that.
I now yield to Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Hash, thank you again for joining us and for your
always cooperative attitude in your work with us. I know it has
not been an easy time for you as Congress and every provider in
the country points the finger at you and you and HCFA overall.
You have been an easy target, I guess, because you are the most
logical and most obvious target.
I think, first of all, that all of us bear some
responsibility for this situation clearly. This Congress does.
This committee does. HCFA does. And we also bear responsibility
because Congress imposed some 300 modifications on HCFA and I
applaud your work and my understanding already is that you have
implemented more than half of those 300 provisions from the
Balanced Budget Act. So for that, you should be congratulated
and people should know that.
I know that HCFA is looking at data from a wide variety of
sources to monitor the effects of BBA implementation on
beneficiaries and on providers. Elaborate if you would on some
of those monitoring efforts and your findings to date,
especially those that relate to seniors' access to care. How
are you monitoring those changes? What have you found?
Mr. Hash. Mr. Brown, as I said a moment ago, none of us is
happy with the extent of information that is available on a
timely basis to do the kind of comprehensive assessment that is
called for here, but within those kinds of constraints, what we
have been doing falls into several categories.
One, we have been reviewing data that is provided routinely
by the Bureau of Labor Statistics in the Department of Labor to
assess changes in participation in the workforce of health care
providers. They break out employment by health care provider
type--hospitals, home health agencies and skilled nursing
facilities--and we have been looking at those figures.
For example, in the case of home health agencies, we have
seen a decline in the participation in the workforce, but
obviously from what we know about the mergers and voluntary
withdrawals of home health agencies, one would expect that to
be the case.
In the case of employment in the hospital sector, it
continues to increase on a monthly basis. It is not growing at
the same rate that it had been growing, but there are clearly
indications that the labor force in the hospital industry is
continuing to grow.
We also are reviewing as much information as we can get
from other surveys and data sources, including AMA surveys and
AHA panel surveys. There are a number of Wall Street analysts
who examine sectors of the health care system that are publicly
traded companies. And we have been doing monitoring through our
regional offices, working with advocacy groups and with States
and others to try to get a clearer picture of the impacts.
I think as the GAO and the IG, with whom we have also been
relying to help us with this monitoring, have tentatively
summarized to this point is that we have not seen any
systematic evidence that quality or access to Medicare-covered
services has been compromised.
Now that is not to say that there are not anecdotes and
instances that people have brought to our attention that
suggest that we need to make some changes, some midcourse
corrections, but so far, we have not actually been able to
determine that there is a body of evidence out there that
suggests that across the board there are certain fixes that
ought to be made.
Again though, we continue to update this information and we
are anxious, through whatever sources, and as you know, we have
actually solicited pretty aggressively the provider
organizations to help us collect and get information about BBA
impacts and we are continuing to review that and are trying to
put that into the mix for the kinds of proposals that we would
like to suggest to implement the President's commitment to make
some changes to the BBA for the remaining years covered by the
act.
Mr. Brown. Thank you.
Let me shift gears for a moment. Several of us on this
committee have worked on H.R. 1579, the Children's Hospital
Education and Research Act. Mr. Dingell is a cosponsor. Mr.
Bilirakis is a cosponsor.
The Medicare Commission, if you remember, the instructions
for it include a request to commissioners to look at GME for
free-standing children's hospitals. Ms. DeGette has been
involved in that and several others on this committee. I
believe almost every member of the commission recommended doing
something. The President has put some money, not as much as our
legislation asks for but some money in his budget.
As you know, they get very little Federal graduate medical
education money because only end stage renal disease
expenditures, the Medicare expenditures, go to those hospitals.
Would you support some sort of children's hospital GME
grant program?
Mr. Hash. Yes, Mr. Brown, we would and have. Actually as a
part of the President's proposal, it is a grant proposal that
would be administered by another part of HHS, the Health
Resources and Services Administration.
We recognize that the formula Medicare uses to determine
graduate medical education payments does not work in the
children's hospital setting. And to ensure that children's
hospitals that are engaged in graduate medical education for
the next generation of pediatricians and subspecialties in
children's care, we want to make sure that those graduate
medical education programs are financed adequately and fairly
and we would like to work with you to push that issue forward.
The President and the administration strongly support a grant
program to assist in the cost of graduate medical education for
children's hospitals.
Mr. Bilirakis. And I would lend my little bit of weight to
that effort. Certainly I endorse it and we should work together
on that.
Let's see. Dr. Ganske?
Mr. Ganske. Thank you. Thank you, Mr. Chairman. And thank
you, Mr. Hash, for being here.
In my opening statement I talked a little bit about
hospitals and we have talked about unintended consequences but
I want to focus a little bit on another provider group and
specifically how well HCFA is following the law in terms of the
BBA.
You know, we have general practitioners, family
practitioners and surgeons out in rural areas that because
there is a very high percentage of elderly in those areas,
really depend on Medicare to be fair.
Now in the Balanced Budget Act we established a sustainable
growth rate system or SGR to control spending growth under
Medicare's physician fee-for-service schedule. For the 1998
SGR, HCFA estimated that the gross domestic product would only
grow at 1.1 percent, a projection that turned out to be one-
third of actual GDP growth.
Then HCFA made an even more serious error in the 1999 SGR
when it estimated that Medicare Plus Choice enrollment would
grow by 29 percent. We know that that hasn't happened.
Those estimates have already cost the physician payment
system $3 billion. Yet to my knowledge, HCFA has done nothing
to correct those errors. If they remain uncorrected, I am
afraid we are going to see the physicians in those rural areas
move into the cities and I think that they could lead to severe
payment cuts to physicians in future years.
Do you have any plans to address that problem? Do you have
any plans to restore the money the physicians have lost to HCFA
already?
Mr. Hash. Dr. Ganske, I am glad you brought that up because
we do have plans and we do, in fact, have a proposal that is
pending before the Congress now to deal with two aspects of the
sustainable growth rate procedure for physician service
payments.
The two changes that we are proposing in the statute are
that the volatility of the factors that are used to calculate
that limit be changed in a way that makes it more predictable.
It is a more complicated way of making these changes than I can
articulate here, but a lot of analysts who know more about this
than I do have looked at the sustainable growth limit
methodology and have found it to produce wide swings in terms
of the estimates that come out of it or the targets that come
out of it, I should say. And we have a proposal to fix that.
Second, on the estimation errors, two of which you have
just pointed to, we have a proposal that allows us to correct
the sustainable growth rate limit for future years to reflect
estimation errors.
Under the current language in the BBA, we do not believe we
have the authority to correct estimation errors and we would
very much like to do that. We think that would be the fair and
appropriate thing to do with respect to physician payments.
Mr. Ganske. Let me just follow this up. The AMA and other
specialty groups wrote the HCFA administrator about their
concerns with projection errors in the sustainable growth rate
on December 2, 1998 within the comment period of HCFA's
November 2, 1998 SGR notice. Then they sent another letter to
HCFA about this problem on May 21, 1999.
Has HCFA ever responded to those letters from the physician
community or at least let doctors know that the administration
is concerned about this? Do you have any copies of replies to
those letters?
Mr. Hash. I do not have them with me, but I will be happy
to furnish them. I am not aware of their status, but they
should have been answered and, if not, they will be answered
promptly, but I would expect they have been answered and I
would be happy to furnish copies of the letters to you.
[The following was received for the record:]
Generally, we do not respond, in correspondence format, to
letters submitted as comments on a proposed notice published in
the Federal Register. We address comments in the final notice
when it is published in the Federal Register. The comments you
refer to were responded to in our final notice that was
published on Friday, October 1, 1999. Attached is a copy of the
notice for inclusion as part of the transcript (See page 53396,
column 1, under Roman Numeral IV, Comment:). In addition, the
May 21, 1999, letter you asked about was responded to on
September 24, 1999. Copies of their May 21 letter and our
September 24 response also are attached for inclusion as part
of the transcript.
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Mr. Ganske. So let's just be straight. You do not know
whether they have been answered.
Mr. Hash. I do not know the status of that correspondence.
No, sir, I do not.
Mr. Ganske. And if they had not been answered, would that
be an egregious error?
Mr. Hash. It would have been an inappropriate response
definitely.
Mr. Ganske. I mean this goes back to December 2, 1998,
within the comment period.
Mr. Hash. I cannot defend----
Mr. Ganske. Let's just assume that they were not answered.
Mr. Hash. I would prefer not to assume that, Dr. Ganske.
Mr. Ganske. Okay. Well, we have no record that they were
answered.
Mr. Hash. I will be happy to furnish you a record as we
have it and if we have not answered those letters, we will do
so promptly.
Mr. Bilirakis. The gentleman's time has expired.
Michael, if the gentlelady who is next would be considerate
here, let me ask you. A couple of times at least you have made
the comments that there are certain things that BBA will now
allow you to do. But I would think that for instance, the
reimbursements to managed care--which has resulted in an awful
lot of Medicare beneficiaries losing those options and that
sort of thing, you know what the intent of the Congress was.
You have interpreted it a different way. So maybe you had the
right to do that.
But the fact of the matter is we are all supposedly trying
to get things worked out here. If there is certain language in
BBA 1997 that needs to be changed in order to afford you the
flexibility to be able to make some of these changes, why
haven't you communicated that to us? I get the impression that
HCFA is not trying to work with the Congress in terms of making
some of these changes.
Mr. Hash. Mr. Chairman, I regret that impression because
the kinds of things I outlined in my opening statement are
reflective of our attempt to respond in a constructive way.
Mr. Bilirakis. I know but I mean in terms of what we can
do. You have shared with us what your attempts are but in terms
of what we can do in order to try to get these things worked
out.
Mr. Hash. I think that is part and parcel of our offer to
sit down and there has not been an opportunity to actually
legislate up until now. There have been no proposals moving
forward that I am aware of, but we are certainly at a place
where we would like to work with you to fashion proposals.
And a part of that process would be the identification of
statutory changes that would either extend greater flexibility
to us so that we could exercise discretion and judgment or, in
fact, if the agreement is that it needs to be more direct in
terms of the statutory language, we also would be prepared to
recommend where that should be the case.
Mr. Bilirakis. Okay. Hopefully we can do that together on a
bipartisan basis.
Ms. Eshoo, thank you for your indulgence.
Ms. Eshoo. Absolutely. You can count on it.
Mr. Hash, it is always a privilege to have you here to give
forthright, solid testimony. You take shots well and you do
your best to answer our questions directly and I appreciate
that. I think we should all acknowledge in this room that we
all have kind of tough jobs but that we like them, too. No one
twisted our arms off to do it, each one of us.
Mr. Hash. Absolutely.
Ms. Eshoo. So we are burdened but we are privileged, as
well.
As you know, in 1996 the Congress passed and the President
signed into law the FDA Modernization Act to streamline the FDA
approval process. I was very proud to be the Democratic sponsor
of that bill. It was not an easy bill to get through the
Congress but we did. And what I am really pleased about are the
reports that I get from both the biotech and the medical device
people, both in my district and across the country, telling me
that FDA is approving the new technologies and the life-saving
drugs and the devices that bring about the changes faster than
ever before. So that is on the plus side.
They also tell me that they still cannot get their products
to patients and this is disturbing to me. People may be
thinking, well, why is she raising this? It was her bill. That
is why she is raising it during this hearing. But it was
directed toward obviously both saving money with better
technologies and saving money in areas that were invasive,
longer stays, et cetera, et cetera. I wanted to get that down
for the record.
Now since there are these complaints about getting the
products to patients and HCFA's role in this, can you tell me
what you are doing administratively to streamline the process
of assigning medical procedure codes and classifying new
technologies and updating the payment levels?
And as a follow-up question, it is also my understanding
that because of Y2K concerns that HCFA has stopped assigning
new procedure codes until after January 1. Is this so and if it
is, what impact do you think this will have on Medicare
beneficiaries' access to new technologies?
Mr. Hash. Let me take the first part of that question, if I
may.
With respect to what we are doing to ensure that
advancements in health care and certainly in pharmaceuticals
and devices are brought to the bedside or the care side of our
beneficiaries, we have launched a very bold, new coverage
process, decisionmaking process at HCFA because we, too, have
felt that the importance of these advancements being made
available under our coverage policy as rapidly as possible is
an extremely high priority for us.
As a result, you may be aware we have instituted a new
coverage decisionmaking process. It is actually modeled, in
many respects, after the FDA process for approval. It has a
very open and transparent and time-limited review cycle for
applications for Medicare coverage. It involves the
establishment----
Ms. Eshoo. When was it launched?
Mr. Hash. It was launched the first of July 1999. We
published the process itself this spring in the Federal
Register and it became effective on the first of July.
And as a part of that, we put into place what we call a
coverage advisory committee, which is composed of 125 imminent
scientists and practitioners from around the country, to
function in much the way that the FDA advisory councils
function, where subsets of that advisory committee will be
asked to----
Ms. Eshoo. That is good news. There are many members of
this subcommittee that worked on the FDA reform on both sides
of the aisle.
Let me ask you this. In what you have launched, and you
term it as being bold, is there anything that is part of this
policy or internal administratively where you are going to sit
down and review the effectiveness of what you have launched?
Mr. Hash. Absolutely.
Ms. Eshoo. So that you can track these timeframes and maybe
give a report back to us?
Mr. Hash. Absolutely. In fact, we are putting up on our
website the receipt date of applications for coverage process.
People can track, on that website, where it has been assigned,
what its due date is, what its status is, whether it has been
referred to the advisory committee, or whether a decision can
be made without that. In many cases, we expect to clear these
applications within 90 days of the origination of the
application.
Ms. Eshoo. And the reimbursement codes are attached to
this?
Mr. Hash. Well, the first step is the coverage itself and
then, as you know, we rely on the codes through a system that
is established, in effect, by the AMA, the current procedural
terminology.
In some cases, a new code must be developed for something
for which there is not an existing code that is appropriate.
That process can take some time. It is not a process that we
run. It is run by clinicians who run the CPT editorial panel.
But nonetheless, we are definitely trying to work with them
to make sure that our cycle gets the new coverage items into
the CPT process as quickly as possible.
Ms. Eshoo. Mr. Chairman, could I ask for your consideration
for Mr. Hash to answer my second question if he can briefly?
Mr. Bilirakis. Without objection.
Ms. Eshoo. Thank you.
Mr. Hash. Our outside contractors on Y2K advised us that in
order to make sure we could do recertification of the readiness
of our claims processing systems, that we should not make any
systems changes between the period of October 1 until we can
ensure our systems are compliant after the millennium rollover.
Ms. Eshoo. So you have stopped issuing new procedure codes?
Mr. Hash. Well, people can still get a new procedure code
and bill but if it is not reflected in the current codes that
are in our claims processing system, it would not be
recognized.
Ms. Eshoo. Does that have anything to do with the payment
level, though, what you have just described?
Mr. Hash. It could affect that but what I would like to do
is if I may, I would like to have someone who could more
knowledgeably explain exactly the relationship of our stand-
down with respect to changes in our claims processing and how
that affects the recognition of new codes between now and after
the new year.
Ms. Eshoo. I think everyone is sufficiently Y2K'd out in
the country. It is this term. My mother keeps saying to me,
``What does that mean?'' But at any rate it does have something
to do with the underlying, I think, the underlying reason for
today's hearing. It is a contributor to it.
So I will look forward to getting----
Mr. Bilirakis. And we will continue to--believe me, this is
not it. We will continue and hopefully----
Mr. Hash. I would like to follow up with you, if I may.
Ms. Eshoo. I would be delighted. Thank you very much.
Mr. Bilirakis. Mr. Bryant will inquire.
Mr. Bryant. Thank you, Mr. Chairman. Thank you, Mr. Hash,
for being here. I have a number of questions so if you could
keep your answers as brief as possible. And in the event I do
not get as complete answers as you want to give or you do not
respond to all of them, could you furnish me an answer in
writing afterwards?
Mr. Hash. I would be happy to.
Mr. Bryant. Let me follow up very quickly with Dr. Ganske's
question, an area that I have an interest in, about the SGRs.
My understanding is that the BBA requires you to publish for
the year 2000 this SGR for physician services by August 1, and
we are beyond that now. I understand that has to be used in
this next fiscal year.
Where are we on that and when might we see this notice
published?
Mr. Hash. My understanding is I believe that that is a part
of a regulation that we are publishing on the physician fee
schedule, which is due out at the end of October, which again
the statute requires publication 60 days in advance of the year
in which it applies. That is my understanding.
If I am not correct about that, I want to get back to you,
but I think it is a part of that rulemaking that is going
forward now.
Mr. Bryant. It is not going to be ready, is it, by the
beginning of----
Mr. Hash. I am correct that it actually is going to be a
separate notice from the October physician regulation and that
it is currently in clearance in our department and we expect to
publish it shortly, meaning within the next week or 2, I
believe.
Mr. Bryant. Let me move on. I am again bouncing from
subject to subject here.
In the area of what Medicare has traditionally covered, the
administration of medications, infusions, injections in an
office visit, Medicare, according to some sources, appears to
be changing its policy so that none of the medications will be
covered if there is a possibility that it could be self-
administered by a patient, regardless of how frail that patient
might be.
Is that true? Is Medicare changing its policy on covering
these drugs that could be administered in a physician's office?
And if so, briefly why?
Mr. Hash. We are working on a regulation to clarify the
statutory admonition, which is that outpatient drugs are
excluded from Medicare coverage when they, in fact, are self-
administered.
There is, we believe, reason to believe we have not been as
clear or precise as we should be about what those conditions
are and how we make those distinctions about what is self-
administered and what is not, and we expect to publish a
regulation, a proposed regulation for comment this fall.
Mr. Bryant. Okay, I think that will be sufficient.
Regarding telemedicine, our Governors just had a conference
of southern Governors in Tennessee and that has been one of the
topics. Certainly I have seen some issues where HCFA has had, I
believe, narrow interpretations that I believe in the long run
are going to stifle or chill the growth of this technology,
telemedicine, regarding the occurrence of consultation in real-
time, who is a presenting practitioner, the definition, and
those kinds of things.
And again I would urge HCFA to look at these issues so that
we can, particularly in rural areas across the country, take
advantage of this new technology.
Mr. Hash. Let me assure you that we are doing that. You may
recall that Secretary Shalala wrote a letter to the Congress in
which she identified four issues that had been raised in the
telemedicine arena, a couple of which you just mentioned, and
that she directed the department to make a review of that and
that basically has fallen to HCFA's responsibility.
We are reviewing those issues and we are going to be
issuing a report on our analysis and recommendations with
regard to those four issues that are in the secretary's letter.
Mr. Bryant. In regard to nursing homes, I had occasion to
visit those, also, and one complaint was the $1,500 cap on
therapy, as opposed to hospitals not having the cap. Do you see
any change there? Do you think that might be appropriate to
reconsider? That was a serious concern.
Mr. Hash. I think it is fair to say that as we have looked
across the issues that have been raised about BBA impacts, the
therapy caps has been among those at the top of the list in
terms of the evidence that is out there that there may be an
inadequate opportunity for rehabilitation therapies in general
to be made available to patients, particularly in the nursing
home setting. And that is an issue that we want to work with
you on in terms of a Medicare reform proposal.
As you may know, this provision got added to the BBA at the
very end. It was not one which we recommended. I think when it
got extended to cover all settings except hospital outpatient
departments, it took on a cast that perhaps has created
unintended consequences and we would like to work with you on
that.
Mr. Bryant. If I might ask you quickly to respond in
writing to one final question in terms of the winners and
losers in any kind of implementation of a new payment system,
we have heard a lot, and I know we heard a lot in the districts
about people who perceive themselves as losing in this.
On the other side, can you identify, again in late-filed
testimony, the groups who will benefit from this new system and
explain why their reimbursement rates would go up?
Mr. Hash. Are you referring to hospital outpatient payments
or all----
Mr. Bryant. APCs.
Mr. Hash. Right, yes, sir.
Mr. Bryant. Thank you.
Mr. Bilirakis. In the letter that you refer to from
Secretary Shalala, would you please submit that as part of the
record?
Mr. Hash. I would be happy to, Mr. Chairman.
Mr. Bilirakis. Without objection, it will be included in
the record. Thank you very much.
[The letter from Secretary Shalala follows:]
Department of Health and Human Services
The Secretary of Health and Human Services
November 9, 1999
The Honorable Kent Conrad
United States Senate
Washington, D.C. 20510
Dear Senator Conrad: I am pleased to inform you and the members of
the Rural Health Care Coalition that the final rule implementing
Medicare payment for teleconsultation in rural health professional
shortage areas will be published on November 2. The Department of
Health and Human Services believes that telemedicine has potential for
extending access to medical care to beneficiaries located in rural and
medically isolated areas and we are pleased that this rule, reflecting
the statutory changes made by the Balanced Budget Act of 1997 (BBA),
will expand coverage for telemedicine.
Payment for teleconsultation represents a significant improvement
over traditional Medicare policy for rural areas by allowing payment
for a service that historically has required a face-to-face, ``hands
on'' encounter. This rule is a first step in refining face-to-face
requirements for a medical service under Medicare to accommodate
telemedicine services. We are open to developing modifications to
Medicare telemedicine coverage and payment policies as the law permits
and as more program experience in this area is obtained. We have
identified several issues related to teleconsulting that we will need
to address further. We will send recommendations to Congress in a year.
This final rule implements the changes in telemedicine eligibility,
coverage, and conditions of Medicare payment made by the BBA. First, in
accordance with the BBA, the rule implementing payment for
teleconsultation specifies that eligibility for teleconsultation is
limited to rural health professional shortage areas. We have
interpreted the definition of a health professional shortage area
broadly to include both full and partial county rural health
professional shortage areas and to consider the site of presentation,
that is, where the beneficiary is physically located during the
consultation, in determining eligibility for teleconsultation.
The rule also indicates that the scope of covered services is
consultation services for which payment may be made under Medicare.
These services include: office or other outpatient consultations;
initial and follow-up inpatient consultations; and confirmatory
consultations.
The rule implements the statutory provision for Medicare payment
for a consultation service that is delivered via telecommunications
systems. As a condition of payment, the patient must be present and the
teleconsultation must involve the participation of the referring
practitioner, or a practitioner eligible to be a referring practitioner
who is an employee of the actual referring practitioner, as appropriate
to the medical needs of the beneficiary.
Additionally, under the regulation, the technology used to deliver
a teleconsultation must allow the consultant to conduct an examination
of the patient in ``real time,'' using interactive audio and video
telecommunications equipment. The requirement that the patient be
present, a presentation practitioner participate, and interactive audio
and video equipment be used is a substitute for a face-to-face
examination which is a coverage requirement for consultation under
Medicare. Note that the ``real time'' requirement, needed to permit
interaction of patient and consultant, does not require use of high-
end, full motion interactive video equipment; less expensive
technologies may permit ``real time'' examination. The requirement,
however, would not allow payment for a teleconsultation when
traditional store-and-forward technology is used.
The rule also implements the statutory provision that the payment
must be shared between the referring and consulting practitioner, and
that payment must not exceed the current fee schedule of the
consultant. The rule specifies that the consulting practitioner will
receive 75 percent and the referring practitioner will receive 25
percent of the consultant's fee schedule amount. The geographic
practice cost index applicable to the location of the consulting
practitioner will be used for pricing teleconsultation claims. By using
the consultant's location for pricing claims, the payment amount for
teleconsultation will be the highest allowed by the statute.
We recognize that we will need to address certain issues you and
your colleagues have raised as we move forward to further develop
Medicare telemedicine policy. Congress and the Administration must have
a clearer picture of the policy and financial implications of several
issues related to teleconsultation including: (1) the use of store-and-
forward technologies used as a method for delivering medical services;
92) the use of registered nurses and other medical professionals not
recognized as practitioners under Medicare to present the patient to
the consulting practitioner; and (3) the appropriateness of current
consultation codes for reporting consultations delivered via
communications systems. Below is a brief discussion of these issues:
<bullet> In exploring the use of store-and-forward technology, our
primary objective will be to determine if or when, store-and-
forward technologies permit delivery of a medical service that
warrants a separate and distinct payment from Medicare. As
mentioned above, Medicare does not make separate payment for
the review of a previous medical examination. Program integrity
implications of moving in this direction may be significant.
Additionally, specific attention will be given to how store-
and-forward technology is being used in dermatology.
<bullet> With regard to the practitioners who may be eligible to
present the patient to the consultant, we will examine the
circumstances in which a registered nurse, licensed practical
nurse, or other medical professional who is not recognized as a
practitioner under Medicare may have the qualifications to
present the patient to the consultant.
<bullet> Finally, we recognize that the current coding structure for
consultation services may not be appropriate for reporting some
forms of teleconsultation. We will examine the possibility of
expanding the scope of coverage under telemedicine to include
additional existing services that are consultive in nature, and
the development of new codes to identify services specific to
telehealth.
In a year, we will send recommendations to Congress regarding these
issues. We look forward to working with you in providing increased
medical access for Medicare beneficiaries through the use of
telemedicine. A similar letter has been sent to the other members who
cosigned your letter.
Sincerely,
Donna E. Shalala
Mr. Bilirakis. Mr. Green.
Mr. Green. Thank you, Mr. Chairman. Like everyone, I would
like to thank Mr. Hash for being here.
Under HCFA's proposed rule on hospital outpatient
prospective payment system, you propose to reimburse new cancer
drugs, which is anything after 1996, at the lowest APC rate,
which is $59.13.
In my opening statement I am sure you heard that I am
concerned that if implemented, this proposal would have a
crippling impact on cancer care and would essentially stop the
development of new drugs. And what company would invest its
resources in a drug that would be reimbursed at such a low
level, especially when they take into consideration this lower
reimbursement rate is locked in for well over half the cancer
patients in the population?
First of all, why was the decision made to place all new,
innovative drugs in the lowest payment category?
Mr. Hash. Well, let me just say the issue for us now, Mr.
Green, is that we are equally concerned about the impact of the
outpatient prospective payment system proposal on cancer drugs,
or cancer therapy with chemotherapy agents. And as you know and
have mentioned in your statement, we are actively engaged in
reviewing the comments that we have received on this. We intend
to address many of these issues in the final rule that we will
publish at the end of this year.
I want to assure you that it is also a serious concern of
ours and our commitment is that we want to make sure that this
system in no way presents any barriers for appropriate cancer
care for any of our beneficiaries.
With respect to the specifics in the proposed rule last
September, I think all of us recognize that in the area of
drugs that the data that were available to us to develop a
hospital outpatient prospective payment system were not
adequate. Therefore, we have contracted with an outside
contractor for the purpose of surveying, in particular, cancer
and other high-cost and often infrequently used drugs so that
we have a much richer and better data base on the cost of drugs
that are now on the market.
We expect to use that information to inform the revisions
to our process in the regulation.
Mr. Green. The second part of that is what impact does HCFA
believe placing these therapies in the lowest payment category
have on utilization, as well as on future research and
development? And also I guess these rates, the impact on the 10
free-standing cancer centers we have in our country. One of
them is in Houston but also Sloan-Kettering and the Cleveland
Clinic.
Mr. Hash. Well, let me again say the reason we publish
proposed rules is so that we can get comment and advice about
how we can make it better and, in this area, we intend to make
it better. And I do not want to defend the particular aspects
of the proposed rule because we put it out there to the best
that we could, based on the data that we had, but we are
struggling to get a better sense of this particular issue so
that our final rule takes that into account.
As you know, even in the proposed rule--and this is not
widely understood--we are actually proposing to separate in
this system the payment for the drug itself and the payment for
the administration. So, if an individual comes in, is
administered a chemotherapy agent in a hospital outpatient
clinic, there is an administration APC for billing purposes.
Depending on what the drug is, in the initial proposal we
created four separate categories for chemotherapy drugs. We are
obviously reviewing that issue based on the comments, to make
sure that we adequately reflect the costs of the drugs that are
now in use.
Mr. Green. We know that a doctor's recommendation or
opinion are the No. 1 reason why patients are seen and receive
a certain type of treatment like cancer screening or a
particular treatment or therapy. And while I think we all agree
that reimbursement levels should never influence a provider's
decision to recommend one treatment over another, I am
concerned that if the hospital outpatient PPS is implemented as
proposed, there will be no way that we can avoid this problem.
Do you agree or do you have a comment?
Mr. Hash. I think, in our final rule, we do not want that
to be a consequence of the new payment system. What we are
trying to do is to put together groupings of related services
in order to create prospective payments that provide an
incentive, not only for access to the best and most appropriate
therapy, but for health care providers to provide their care in
the most efficient and economical way possible.
Obviously, as someone mentioned earlier, we are trying to
find the right balance between incentives for efficiency and
economy and the appropriate assurance of access to covered
services for our beneficiaries.
Mr. Green. I notice in your statement where you said HCFA,
you are looking at the 3-year budget to make it budget-neutral.
Does HCFA have the authority to phase the PPS in over 3 years
and make it budget-neutral?
Mr. Hash. We do believe that we could have a transition on
a budget-neutral basis in implementing the hospital outpatient
payment system.
Mr. Green. Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Greenwood will inquire.
Mr. Greenwood. Thank you, Mr. Chairman.
I want to raise a question or an issue that is not directly
related to the Balanced Budget Act which is crucial to
Pennsylvania's hospitals, and that is the disproportionate
share issue that is, I think, unique to Pennsylvania.
Since 1986 Pennsylvania hospitals were able--in fact, the
FIS, fiscal intermediaries, assembled the data to count general
assistance days toward the DSH payments for Pennsylvania
hospitals and, as you know, last year HCFA decided that not
only was that not going to continue forward but that, in fact,
HCFA was going to go back and collect from all of these
hospitals. It was a tremendous blow. I think the number is on
the order of magnitude of $200 million in Pennsylvania.
Several of us, Chairman Thomas and myself, have raised this
as an issue of concern and I would like to understand your
position on that.
Mr. Hash. Yes, sir. Mr. Greenwood, this has been an
extraordinarily difficult issue for us. Obviously it, I
believe, arises from a failure on the part of our contractor to
apply appropriately the statute and regulations in this area. I
believe that our review of the formula that is in the law for
determining Medicare DSH payments makes it very clear that for
purposes of hospital days that are to be included in this
calculation, it is days associated with individuals entitled to
benefits under Medicaid, Title XIX of the Social Security Act.
Unfortunately, in the case of Pennsylvania, the State seems
to be reporting to the fiscal intermediary data that put
together not only Medicaid days but also days associated with
patients that were eligible for a general assistance program in
Pennsylvania. That comingling of the days produced a larger
disproportionate share adjustment than would be authorized
under the statute if it did not include those general
assistance days.
And under the law, we believe that we did not have any
choice but to collect overpayments that were made in error in
regard to the inclusion of these inappropriately covered days.
Mr. Greenwood. Well, is that your conclusion? Is that
HCFA's conclusion, that you do not have the statutory authority
to----
Mr. Hash. Yes, sir, that is our conclusion. And my
understanding is the fiscal intermediaries that serve those
hospitals have already initiated the process of recovery and
that it is ongoing.
Mr. Greenwood. That is very much the case, with devastating
consequences. Do you have a position on whether you would like
the statute changed so that you can right this wrong?
Mr. Hash. I think actually that is a matter we should
discuss. I think the reasons behind the statute having been
written the way it was, presumably at some point people
believed that the disproportionate share adjustment in Medicare
should be limited to the fraction of days for low-income
patients and the proxy for low income was Medicaid-eligible
individuals. If people want to enlarge that proxy----
Mr. Greenwood. No, I do not think that is the question,
sir. Sorry for interrupting you. I think Pennsylvania hospitals
are content with the notion that forward, looking forward,
those days will not be counted anymore. The hard part is going
back and hitting hospitals that are, in fact, very strapped
because of BBA issues and hitting them again with this double
whammy is tough. And we are going to pursue giving you the
authority to at least not have to go back and get those
payments.
Let me quickly turn to an issue that is close to that
raised by Mr. Green, and that is the exempt cancer centers,
including Fox Chase, which is in my area, serves my area.
Under the Balanced Budget Act, we directed HCFA to consider
establishing a separate payment methodology that recognizes the
special mission of these centers. My understanding is that HCFA
has declined to do that, not to consider but to, in fact, come
up with a separate payment methodology.
And it is my belief that these cancer centers, including
Fox Chase, are being hammered and are losing significant
dollars and are threatened by this outcome. Could you discuss
HCFA's thinking in this regard?
Mr. Hash. We have not reached a final judgment on that
question because that will be part of the final rulemaking for
the hospital outpatient prospective payment system.
We are very much aware of the concerns of cancer centers.
There are 10 of them around the country. And obviously the
Congress, as you pointed out, identified some special authority
for treatment of them and we are continuing to review that
question. We have not made our final decisions on it.
One of the things, again, that may have been somewhat
misleading is that the impact assessments that went out with
the proposed rule indicated a very large impact on cancer
hospitals. We think that, in part, stems, again, from data
problems in that, in some cases, people may have billed for
cancer treatments with the drug and the administrative costs
together, as opposed to separately. The data we have may not
have broken it out properly.
Under the proposed rule, we, as I mentioned a moment ago,
proposed to pay separately for administration and separately
for the drug and separately for each dose of drug that is
administered. We want to make sure, through additional efforts
on the data side, that we, in fact, have a better assessment of
the impact of this proposal on cancer centers.
But I want you to know that we do not intend to
disadvantage and cause those centers not to be able to provide
the valuable service they are providing to patients who require
cancer treatment.
Mr. Greenwood. Thank you.
Mr. Bilirakis. Miss Capps to inquire.
Ms. Capps. Thank you. I want to thank Mr. Hash for being
here today. I appreciate your testimony.
You spoke earlier about some of the steps that HCFA has
taken or will take to lessen the impact of the cuts on small
rural hospitals and I am hoping that in the next couple of
minutes you can elaborate a little bit on this.
Most specifically, we have been hearing so many negative
projections about the proposed hospital outpatient PPS,
prospective payment system, that it is easy to forget that this
change is a very pro-consumer provision. Under the current
system, seniors end up paying about 50 percent of the total
bill and for most other parts of the Part B benefits the co-pay
is around 20 percent. And could you remind our committee of the
disadvantages of this current system and how the proposed
payment system will take effect?
Mr. Hash. I would be happy to, Ms. Capps.
Briefly, as many of you know, historically beneficiaries
have paid coinsurance for their hospital outpatient services on
the basis of the hospital charge, which was on a charge
schedule at the time they received those services. That charge
does not necessarily bear any relationship to what the program
ultimately determines is the appropriate amount for the
service.
What the BBA changes enable us to do, is to bring those
beneficiary coinsurance payments into line with 20 percent of
the Medicare payment amount, which was the intention and
certainly the statutory provision. Up until now, beneficiaries
have been subject to a coinsurance that was based on hospital
charges that were raised very dramatically over time. This
resulted in some of those copayments equalling as much as 50
percent or even more of the payment that was made to the
hospital for those services. The BBA fixes that.
Ms. Capps. And could I also mention that the AARP has
written a letter to the speaker, which I would like to submit a
copy of this letter for the record?
Mr. Bilirakis. Without objection.
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Ms. Capps. Thank you. Asking that the BBA reforms not delay
this transition to 20 percent and maybe you could speak even
further about how delaying it, how it is going to affect
seniors.
Mr. Hash. Well, I think it is clear that hospital charges
for outpatient services are likely to continue to rise for a
number of reasons that have been talked about already here
today. So, as we continue to delay implementation, those
coinsurance payments continue to go up. We would like to bring
that into line as quickly as possible.
Ms. Capps. And if I have a little bit more time, back to my
original question. You, in a broad way, outlined some of the
steps that you are taking to lessen the impact of cuts to
small, rural hospitals. My district is going to be listening
for your elaboration in the remaining time on how this is going
to happen.
Mr. Hash. Let me just quickly tick off the things I
mentioned somewhat briefly earlier. We are delaying the
expansion of the hospital transfer policy, which has been
applied to 10 DRGs, but was scheduled to be applied more
broadly. We have delayed that, which will be of benefit, I
think, not only to rural but to other hospitals, we well.
We talked about the transition, on a budget-neutral basis
to the implementation of the hospital outpatient prospective
payment system. We have talked about delaying what is called
the ``volume control mechanism,'' which is referred to in the
BBA as basically an annual target to be applied to the growth
in hospital outpatient payments. We have decided to suspend
imposing that target growth rate for the first few years of the
PPS.
We also have committed ourselves to changing the criteria
that allows rural hospitals to qualify for use of the urban
hospital index, which has the effect of increasing Medicare
payments to those rural hospitals. And we have talked about
using the hospital wage index to adjust payments under the
hospital outpatient prospective payment system from year to
year.
I think those changes, combined with the President's
setting aside of this fund, the $7.5 billion, to smooth out any
unintended consequences of the BBA, represent real
acknowledgement of the importance of supporting rural hospital
providers and all providers who are low-volume providers.
Ms. Capps. When I go back home, how soon can we begin to
see this? I do not think it has registered yet, at least among
the hospitals that I am in touch with.
Mr. Hash. Well, many of the things I mentioned are
associated with implementation of the outpatient prospective
payment system, which, of course, has not occurred yet. So
these will be associated with that process, which will come
later next year. The wage index change is being put into place
right away, so we are getting ready to publish the new criteria
for that so that there will be an easier opportunity for
hospitals in rural areas to qualify for a more favorable wage
adjustment.
Ms. Capps. Thank you.
Mr. Bilirakis. Mr. Deal to inquire.
Mr. Deal. Thank you, Mr. Chairman.
In your prepared statement you indicate that the solvency
for the Medicare Trust Fund is projected to be 2015, which is
one of the more optimistic out-years that I have seen
projected.
You also indicate that the President's proposal in the 2000
budget would ask for a $7.5 billion infusion of money from the
surplus, the anticipated surplus. I have several questions in
that regard.
The 2015 insolvency date, is that the projected date
without any other additional infusion and without any other
statutory changes to the current system?
Mr. Hash. Yes, sir. That is a projection actually that is
made on behalf of the trustees of the Medicare Trust Fund. It
is their estimate, which is calculated by the actuary, the
Office of the Actuary at the Health Care Financing
Administration.
Mr. Deal. Do you know the either daily, monthly or annual
deficit is at the current time?
Mr. Hash. I do not have it with me, but I do know that it
exists and is readily accessible and I would be happy to
furnish it to you.
Mr. Deal. And I believe that projection for that deficit
will increase significantly after about the year 2010?
Mr. Hash. I wish I had the figures here. My recollection is
that the deficit does appear sometime, under current
assumptions, after 2010. I just do not have the schedule in
front of me.
Mr. Deal. I recognize that questions about surplus have
always been fluctuating figures. Is the $7.5 billion proposal a
one-shot infusion out of anticipated surplus for the year 2000?
Mr. Hash. I think the best way to answer that is that the
$7.5 billion is part of a broader comprehensive proposal that
the President has put forward that involves not only the
smooth-out of the BBA issues that we have been talking about
this morning, but also the structural reforms to the Medicare
program and, very importantly, the dedication of a significant
portion of the surplus to the Medicare Trust Fund.
To answer it more specifically, the estimate of the $7.5
billion was the effect of making changes that would actually
affect years through 2001 to 2009. So it is an effect that is
estimated over a 10-year period.
Mr. Deal. So it is not just a one-shot infusion of
supposedly surplus funds.
Mr. Hash. As you think about changing BBA policies that
result in payment changes, those have ripple effects that carry
on beyond the year in which they are made. And the $7.5 billion
is intended to be a fund that would cover the out-years, up to
10 years worth of out-years costs associated with whatever
package of smooth-out changes to the BBA are agreed to by the
Congress.
Mr. Deal. And would the surplus funds be surplus from the
income tax general revenue stream or would it require using the
surplus from the Social Security Trust Fund?
Mr. Hash. These are actually--the $7.5 billion is
anticipated to be from what we refer to, I believe, as on-
budget surpluses, which are surpluses generated without regard
to surpluses in Social Security or Medicare trust funds.
Mr. Deal. And that figure once again is over what period of
time?
Mr. Hash. Ten years.
Mr. Deal. So it would be $7.5 billion over a 10-year period
from anticipated surpluses.
Mr. Hash. That is correct, on-budget surpluses.
Mr. Deal. Mr. Chairman, I would like to yield the remainder
of my time to my colleague, Dr. Ganske.
Mr. Ganske. Mr. Hash, I am very disturbed with the gist of
some of your comments as it relates to the SGR. Basically when
you talk about the gross domestic product component of this, as
well as the percentage of recipients, of beneficiaries who are
in managed care, you admit that you were off.
Mr. Hash. Those were errors.
Mr. Ganske. Those were errors. I mean it is right there.
You admit it. The facts are the facts.
Mr. Hash. I do, Dr. Ganske.
Mr. Ganske. But then what you say is well, but we made an
error, but even though this is a method of calculation for
payment that is cumulative--in other words, if you make an
error now and if it is not corrected, that compounds--sort of
like compound interest----
Mr. Hash. That is correct.
Mr. Ganske. That we are just going to let it go.
You know, I was one of the authors of this bill and we are
in the process, the staff and I, of looking up the pertinent
sections for this bill.
I believe you have the statutory authority to go back and
fix that error, which you readily admit is an error. And we
will provide you with the language on that. And I believe that
this is more than just sloppy if you do not fix this.
And I want you to take a message to Secretary Shalala on
this, a strong one, okay? If you make a mistake, own up and fix
it but do not compound over the next 5 years the error. You
have got statutory authority to fix an error. There is nothing
in that statute that I know of that fixes an error in stone,
and it should be done.
I do not think Congress has to pass a law on this. It is
already in the statute.
Mr. Bilirakis. A very short response.
Mr. Hash. We intend to fix it and that is why the
President's budget includes legislation to fix it. We do not
want to leave it unaddressed and we intend to act on that, with
the help of the Congress.
Mr. Bilirakis. The gentleman's time has expired.
Miss DeGette to inquire.
Ms. DeGette. Thank you, Mr. Chairman.
The first thing I want to talk to you about, Mr. Hash, is
this example I used in my opening statement of the woman who is
blind from diabetes and who is trying to keep her diabetes
under control and now, under the Balanced Budget Act, she used
to get home health care but now she cannot get someone to come
and fill the syringes. She used to have a registered nurse and
maybe she does not need a registered nurse but now she cannot
get anybody.
And this leads to the obvious tension that we are all
trying to grapple with here, which is on the one hand, you do
not want to provide services that are not needed or provide
people who are more qualified than not. On the other hand, what
do we do about people like this with a very real need for
services who are slipping through the cracks?
I know you addressed the rehabilitation issue but this is
sort of a different issue.
Mr. Hash. Well, the case you cited is an extraordinarily
sympathetic one. I think all of us are struck by this. This is
a situation that is most unfortunate and we should find a way
to address it.
I would say, as you know, it does beg this larger question
of exactly what are the terms for covering home health
services. And up until now, the law has been pretty explicit--
that it requires, among other things, that an individual needs
a skilled level of service, and that has been defined as a
registered nurse's skill level or a registered therapist's
skill level.
That is not to say that people do not need other kinds of
services that do not require that level of skill, but the
benefit design currently does not speak to unskilled services
as a basis for home health coverage under Medicare.
And it obviously, as we have looked at what has been going
on in home care, one of the things that grew the most rapidly
was the home health aide visits. It was not the RN visits or
the therapist visits that were growing so rapidly. It was the
home health aide visits. And the difficulty with that was that
access to the aide coverage under the home health benefit is
linked to the first-order question: Does the patient meet the
need for a skilled level service? If they do, then they are
also qualified for aide services, as well.
Ms. DeGette. Right. But this is what drives my constituents
crazy about the government, is because it is sort of like Alice
in Wonderland to them. Well, I need this but not that.
Now I understand that the home health care area was and
still is probably the most rife area with fraud and abuse. On
the other hand, in an effort to cut that down, what we are
doing is for seemingly meaningless bureaucratic reasons to
these constituents, we are cutting off very real services.
I wonder if HCFA has given any thought to how we can
balance this out. As I said, this is an extremely sympathetic
case. But it is not the only case. There are other examples.
Mr. Hash. I am sure you would appreciate that we are not in
a position, I think, to say that we should supply aide services
to people who could benefit from them, notwithstanding whether
or not they qualify for a skilled service.
Ms. DeGette. So you do not think there is any solution to
situations like this.
Mr. Hash. Well, I do not think within the current structure
of the statute----
Ms. DeGette. I understand but part of the context of this
hearing is how can we fix things.
Mr. Hash. Right. I think we could definitely talk about
ways in which the statute might be changed.
Ms. DeGette. And does HCFA have any ideas on that?
Mr. Hash. Well, I do not have a proposal on that and, as
you might know, there would be a significant cost associated
with it and we would need to weigh that, along with the other
priorities that need to be addressed or people want to address.
So I think that is obviously what makes this undertaking
extraordinarily challenging.
Ms. DeGette. I agree.
The second question that is sort of related is this
streamlined inherent reasonableness test in the balanced budget
agreement. I am wondering if HCFA has any kind of standard that
it is using to make sure that beneficiary access and quality of
care are not compromised with these IR payment adjustments.
To give you an example, I have a letter from Congressman
Weldon in front of me where he is talking about these diabetes
strips, the reimbursement being cut by 10 percent and the
effect that that has on patients.
Mr. Hash. We are taking a very careful approach to the use
of the authority in the BBA on inherent reasonableness and we
recognize that as we use that authority to make changes
nationally that we need to have firm market pricing data
available to base those decisions on. We are not moving forward
until we have a better sense of market prices on issues before
we make any changes like this.
But I would say to you that in many of these areas, and
test strips is one of them, we had a report by the HHS
Inspector General that we were significantly overpaying for
those items. So, that is why it ended up being addressed as it
did.
But again, I hasten to add that in order to exercise this
authority appropriately, we need to make sure we have the data
base upon which to judge what things are reasonably available
for in the marketplace.
Ms. DeGette. Thank you.
Mr. Bilirakis. Mrs. Cubin to inquire.
Mrs. Cubin. Thank you, Mr. Chairman.
I am somewhat confused but first I want to make the
statement that I realize the focus of this hearing is on the
Medicare fee-for-service policy changes that are contained in
the BBA but since Wyoming even yet relies almost completely on
fee-for-service, I think we have been affected in a much more
devastating way than other States and other places with higher
population.
In my State, if we lose one single doctor, that means
hundreds or thousands of people do not have any access to
health care at all.
I want to go back a little bit to--and by the way, thank
you for all the cooperation that you have given us in working
through these things and the questions you have answered so
far.
I want to go back to Dr. Ganske's line of questioning a
little bit. I do not understand why you need help from Congress
to fix the mistakes that were made with the real GDP and the
fee-for-service enrollment because one of the four items that
you are allowed to use in these adjustments is the impact of
changes in legislative or regulatory initiatives.
So it seems to me you have the ability to go back and
correct the mistakes that have been made so this cumulative
problem does not move forward. So please tell me why you think
you need a legislative fix.
Mr. Hash. I would be glad to, and I am glad you raised it
again because I want to emphasize a point I did not make to Dr.
Ganske, which is that the errors he is referring to are
projection errors. They were made by the actuaries. I believe
we have the finest, most professional, most independent
actuaries and I know that these were errors that are attendant
to the estimating process.
So it is not a case of being sloppy or intentionally----
Mrs. Cubin. Nobody has a crystal ball.
Mr. Hash. Right. So I want to make it clear that I do not
think there were intentional errors.
Mrs. Cubin. I agree.
Mr. Hash. They were associated with the estimating process.
Second, we have carefully and thoroughly and, I would say,
exhaustively tried to review the statute with our general
counsel at HHS to determine whether or not the statutory
language allows us to correct for projection errors. The
opinion that we have been given is that the statute does not
acknowledge the authority to make projection error corrections.
We would like to have that authority and have recommended
it in the President's budget proposals that are pending here in
the Congress now.
Mrs. Cubin. So you do not think that your regulatory
allowance, if you will--I do not see why it would not because
projections, making those projections are what is allowed
through the regulations that you adopted, as I understand it.
Mr. Hash. But the statute requires that projections be made
by the actuary on the factors that Dr. Ganske raised and those
are not a part of the rulemaking regulatory process. We have
not promulgated a rule that projects either enrollment in
managed care plans, which is one of the issues, or in the
growth in the GDP, which is the other issue he cited.
These are reserved to the province of the independent
actuaries to make these projections. If they, in fact, make
errors, we want to be able to correct them. And they are going
to make errors and the errors are going to be in both
directions, I might add. It is equally possible--in fact, it
has occurred in the past where we have underestimated effects
and that we have not gone back and tried to take money back
from people as a result of that.
But I think the important point here is that we want to
make the change. We want to correct the error and not have it
ripple forward to all the SGRs of the future.
Mrs. Cubin. Well, thank you. At least now I understand what
the thinking is and I did not understand that at all.
Mr. Hash. We would welcome Dr. Ganske's support and your
support to have the authority put into the law in upcoming
legislation.
Mrs. Cubin. I am glad that I am married to a doctor and not
a lawyer because this just seems like such a nit-picky thing,
that because this is projections, we cannot use the legislative
language because I believe very strongly that was the
legislative intent.
Mr. Hash. I understand.
Mrs. Cubin. Then I want to just ask another thing as far as
implementation of this goes.
Mr. Bilirakis. If you can do it really quickly.
Mrs. Cubin. I can. It has to do with HCFA not yet having
begun the refinement that was mandated by Congress on the
practice expense values and the regulation or the proposed
regulation not allowing staff of practitioners who provide the
major part of their service in a hospital but the staff in
their office, not allowing that to be included in the practice
expense values.
Mr. Bilirakis. That is an area--I am sorry; I did not mean
to interrupt.
Mrs. Cubin. Go ahead.
Mr. Bilirakis. I was just going to say it is something we
want to continue to look at. Do you have a very brief----
Mr. Hash. I have a very short answer, which is that was in
the proposed rule, Mrs. Cubin, and we are in the process of
finalizing the rule. We have not made our final decisions and
that is an issue we are familiar with and we have it under
review and we intend to address it in the final rule.
Mr. Bilirakis. But are you in the process of doing that,
going to take into consideration the additional data that has
been submitted by, I believe, the AMA? Because if they sent out
a survey and gotten additional responses and my understanding
is that you, HCFA, may not be planning to take into
consideration----
Mrs. Cubin. The policy was based on 34 responses and I
believe there are 154 or something like that more now.
Mr. Bilirakis. Right.
Mr. Hash. Briefly, it is my understanding, and I would like
to make sure that I could correct my statements if I am
speaking in error--it would be unintentional--but what I
understand is that we did not have sufficient data or time at
the time we got some information. The data situation may be
changing.
It is important to recognize that in our evaluation of
practice expense values for physician services, we are keeping
open, during all 4 years of a transition to the new practice
expense values, the opportunity to reweight or revise those
practice expense values.
So even if for some reason it was not included in this
year's practice expense rule that is coming out later, it would
not be precluded from being considered subsequently because all
of the practice expense values that are in place now are
considered interim and subject to change based on data.
Mrs. Cubin. Dr. Ganske and I were on opposite sides of that
issue last year, I believe it was, because I do think we need
an equalization of fees that are paid to cognitive as well as
procedural medicine.
But my problem with this is that we settled on his way, on
getting more information and new studies. So really I just
think that the agency has to comply with what the Congress
ordered and that is, in fact, what the Congress ordered--all
the expenses to be considered.
Mr. Bilirakis. That all practice costs be considered, and
that is the significant thing here. I would probably tend to
side more with Ms. Cubin's view, but the point of the matter is
that we do not want to sway from the intent of the Congress,
which I think is clear that all practice costs be considered.
Mr. Hash. I understand, Mr. Chairman.
Mr. Bilirakis. All right.
Now the bell has gone off. We have a series of votes. There
are four people over here who have not had an opportunity to
talk with Mr. Hash and I do not want to take that opportunity
away from them. So I guess we had better just go ahead and
break.
Mr. Towns. If I could just ask one quick question?
Mr. Bilirakis. Well, I want to get you back here.
Mr. Towns. I want to come back, especially after I read----
Mr. Bilirakis. Go ahead with your one question.
Mr. Towns. [continuing] that Mr. Hash was happy to be here.
Mr. Bilirakis. But I want to hear that you are happy to be
here.
We are going to break for--we will let Mr. Towns ask his
one question, if it is okay with Mr. Hash.
Mr. Hash. Yes.
Mr. Bilirakis. And then we are going to go ahead and break
for a good half hour anyhow because we have a series of votes.
I think it is only two, maybe more.
Mr. Towns. Thank you, Mr. Chairman. I will be brief.
Under the current projections, New York City Hospital
stands to lose 40 percent of their revenue from outpatient
reimbursement. We also have a major problem with reductions in
indirect medical education.
Given the financial constraints that we are facing,
wouldn't it make a lot of sense for HHS to fix the outpatient
problem administratively and the Congress to address the cuts
in medical education payments? Wouldn't that make sense?
Mr. Hash. We are working on that hospital outpatient rule
and we obviously have not published our final rule and we
expect to make a number of changes based on the kind of
comments that we have been getting during the comment period.
Mr. Towns. Let me say that during the break I had an
opportunity to do a lot of things with hospitals involved. I
even visited folks that were ill in the hospital, had an
opportunity to be administrative shadow for a day, had an
opportunity to attend several luncheons. I even attended a
board meeting and I had an opportunity to talk to staff who
have worked at the hospital for 25 and 30 years. I attended a
ceremony where people have been working for 30 years in the
hospital.
And I must say to you that I am concerned in terms of the
kind of service that is being rendered at some of these
hospitals, the fact that the staff were complaining about
excessive work and being stressed, and all these things affect
patient care.
I think we need to be very, very careful as we look at this
and I think that maybe we need to be more involved in terms of
the Congress sitting down and talking with you but to be honest
with you, as I listened to patients in the hospital talking
about the lack of service and listening to staff talking about
they cannot provide any more, and then I think I heard you say
something about the staffing and in all these hospitals, the
staffing has gone down, there is reduced staff in major kinds
of ways, to the point where some people are saying that there
is nothing else to cut, there is nothing else they can take
away. And, at the same time, we are talking about making
further cuts in some instances.
So I want to let you know I am very concerned about it and
I think that, Mr. Chairman, maybe we need to, not only in this
hearing but sit down and have some real dialog about this
health care because this is a serious issue we are dealing
with.
Mr. Bilirakis. I have already made the statement and Mr.
Hash has agreed that we are going to sit down with him and his
people. And I know that at least one of his staff people here
has already approached the staff with the idea of sitting down
with them and we are going to do that.
We are going to invite both sides of this entire
subcommittee and I would hope that you would show up and make
your points at that time so we can get something really----
Mr. Towns. I would be delighted to participate. I am
concerned.
Mr. Bilirakis. And I have voiced the same concerns that you
have, that I am sort of disappointed that HCFA has not seen fit
to approach us and say hey, these are some of the things that
need to be changed in the statute to allow us to do better.
Mr. Hall. Mr. Chairman, under your leadership and with the
enormity of the problem that we have and because we are in a
different atmosphere than we were when we started the balanced
budget approach in the 1980's and finally concluded it in the
1990's, that we not adjourn when they set a date this year to
adjourn, like October 15, that we not adjourn, that we stay
here for another month and solve this problem.
We are losing people. Folks are going bankrupt. People are
going without treatment. It is a disaster and there is an
answer and the answer is money and we have more money now than
we had when we wrote the Balanced Budget Amendments.
Mr. Bilirakis. October 29 was the target date which was set
up earlier in the year. We have already been told that we will
be fortunate to get out of here before Thanksgiving.
The fact of the matter is we are planning to sit down with
Mr. Hash----
Mr. Hall. We really ought to stay and get our work done.
Mr. Bilirakis. If we stay, we may be able to get at them.
Michael, I cannot relieve you because apparently I do not
want to keep anybody from inquiring.
Mr. Hash. I understand.
Mr. Bilirakis. So we will go in recess for a half hour.
[Brief recess.]
Mr. Bilirakis. This hearing is back in session and thank
you, Michael, for being so patient with us.
The Chair recognizes Mr. Burr to inquire.
Mr. Burr. Mike, welcome, and my apologies for my absence.
And if I cover anything that we have already been over, just
let me know and I will read the testimony.
Let me ask you, of the options that exist relative to the
therapy cap that have been batted around, is there any
suggestion or recommendation that HCFA has for us relative to
legislative remedies?
Mr. Hash. We are definitely looking at options with regard
to this. We are going to meet. The chairman and I had a
discussion earlier about meeting later this week to discuss
specific kinds of proposals and options and I am actually not
in a position today where I can lay all those options out for
you, but we intend to do that with the committee and its staff.
We want to explore that area in particular because, as I said
earlier, we have reason to believe that in some settings, the
therapy cap is really not adequate to meet the needs of certain
kinds of patients, particularly patients in nursing home
settings, and we want to see what can be done about that.
Mr. Burr. You mentioned I think in your testimony or in
some reference that you were examining information from Wall
Street regarding trends in Medicare and I just wonder if you
can tell us what type of information that is and what you are
receiving and comment on investors as it relates to the
attractiveness of this health care delivery system.
Mr. Hash. The information we have been reviewing, Mr. Burr,
has not been so much about the opinions of people who are in
the investment business as much as it has been looking at SEC
filings in which corporations obviously have to disclose
material financial issues to their stockholders and to the
public, and we have been looking at that as some kind of
indication about the financial health or viability----
Mr. Burr. When we see a 50 percent drop in the assets of
long-term care facilities, should that be a sign that
policymakers look at for health conditions?
Mr. Hash. It should be, but as I know you know, as we have
looked at the nursing home industry that you are referring to,
we have come to the judgment, as has, I think, the GAO and IG,
as well, that many factors have gone into the changing asset
values of those companies. Medicare policy certainly may be one
aspect of it, but clearly there are other business decisions,
or market conditions, which have put some of these firms in
financial jeopardy, that are unrelated to the Medicare payment
system.
Mr. Burr. But you would not object if the whole industry
was affected from an asset value after BBA 1997? Granted there
were some individual players that had business decisions that
were evaluated differently but the industry was devalued in
asset value based upon the changes.
Mr. Hash. I honestly am not sufficiently familiar from an
industry-wide basis. We have been concentrating on the 10
largest national chain organizations to get a sense of,
particularly those that are publicly traded, what has been
happening in their filings. And, as some people have pointed
out earlier, on Monday, Vencor Corporation filed for Chapter XI
bankruptcy protection.
Mr. Burr. The financial health of that industry, you would
agree, has an effect on any long-term expansion plans that they
might have?
Mr. Hash. I am certain that it would, yes.
Mr. Burr. Let me ask you and I was told that you went over
this ground but I would like to give you one more opportunity
to answer it for me. I think HCFA has interpreted the
outpatient statutory language such that hospital outpatient
payments are $900 million less per year.
Now HCFA received a letter from quite a few members of this
institution. I was one of those. And simply how would HCFA
respond to that?
Mr. Hash. What we have said, Mr. Burr, is that we recognize
that this is a serious problem. It has been brought to our
attention by all sorts of people. And we have asked our general
counsel at HHS to review the statutory language closely and
carefully to see if we have any basis for coming to a different
conclusion----
Mr. Burr. Was there something that was not clear in the
letter from those Members of Congress that, in fact, the way
HCFA interpreted was not the intent of Congress in the
language?
Mr. Hash. I think where we are, Mr. Burr, is that we have
done the best job we have to read the actual language of the
statute and when we have done that, we believe that the
interpretation that we have applied to it is the appropriate
one.
We are still looking, however, to see if, in fact, there
are alternative ways of evaluating the intent here. As I know
you know----
Mr. Burr. Not to be adversarial but what is a better way to
interpret the intent than to ask the people who wrote it, which
is, I think, what the letter confirmed?
Mr. Hash. The letter does express that view and that is
correct, Mr. Burr, but I think our judgment on this is that we
are still trying to make sure that we are implementing the law
as it was written. We have not come to a conclusion here in the
end. That is what I said earlier. We are still reviewing this
matter and we have not made a final judgment.
Mr. Burr. Well, my only hope is that that letter has
clarified in the minds of those at HCFA what the congressional
intent of that legislation spelled out.
Let me ask you very quickly on home health care, would HCFA
recommend today that we delay the October 1, 2000 PPS plans and
the 15 percent reduction?
Mr. Hash. We would not, Mr. Burr.
Mr. Burr. Will HCFA suggest or recommend any changes to the
current reimbursement structure that we have for home health?
Mr. Hash. Well, we are on the verge of publishing a
proposed rule for the home health prospective payment system
and I think people will see in that proposed rule the kinds of
approaches that we have taken, trying again to follow the BBA
admonition.
Mr. Burr. But one could interpret that under the PPS it
would meet the letter of the law, which is that there has to be
at least a 15 percent reduction from where we started?
Mr. Hash. Yes, sir. I believe our view is that the statute
is extraordinarily explicit with regard to that issue.
Mr. Burr. I realize my time has run out. I would remind the
chairman and also for the purposes of HCFA that I remember
sitting in the same room when the administration introduced
this insane plan that had a 15 percent arbitrary cut at a
predetermined date sometime in the future for home health. And
when pressed, the then-administrator of HCFA said yes, it was a
budget decision that stuck a number to meet a financial figure.
And I said at that time I hope we are not crazy enough to adopt
it, and I did.
I came to Congress for one reason--to have a balanced
budget. In 1997 that one issue forced me to vote no on BBA
1997.
Today I feel good about that but the reality is I think it
was still arbitrary at the time. It is wrong today and I am
hopeful, Mr. Chairman, that this committee will look at it,
along with HCFA, to determine whether there is a better way to
do it so that it is fairly applied and so that that specific
industry, which we looked at a number of years ago as a
significant piece of the cost savings picture for Medicare--if
we can move patients out of hospitals faster because of care
they can be given off-premise, that, in fact, we reach a more
efficient and cost-effective system. And I think to some
degree, they have now gotten hung up in everything else that is
being squeezed.
I thank you, Mike.
Mr. Bilirakis. I thank the gentleman. I would just merely
say that I think the BBA 1997 accomplished most of its
objectives but, as I also said in my opening statement, there
are a lot of unintended consequences, unforeseen problems.
Bigness will do that and God knows we are talking about bigness
here. It is up to us to try to correct those problems but first
we have to admit that there are problems there.
Mr. Burr. Let me acknowledge that the attempt was a very
good attempt. It is just I was torn on just how bad that one
provision smelled. Thank you.
Mr. Bilirakis. Well, you were being ultra careful, I guess.
Mr. Deutsch to inquire.
Mr. Deutsch. Thank you, Mr. Chairman. I just mentioned to
my staff that in the 12 steps, the first is an acknowledgement
that there is a problem, so at least we are one step along the
way.
Particularly I guess this is a timely question. Could you
explain to us the changes in nursing homes who are forced to
evacuate residents, as some have, because of the impending
hurricane throughout almost 1,000 miles of to East Coast of the
United States, who would pay for this transportation, how has
it changed under BBA when the patients are transferred, and
what risks do patients face in that?
It is my understanding that there is actually a BBA change
regarding transportation factors in terms of nursing home
residents, that it is a nonreimbursable expense at this point
in time.
Mr. Hash. I must say I am not sure I understand fully your
question, or maybe I am not fully familiar with the facts here,
but I am not aware that if a nursing home has to be evacuated
because of a natural disaster or other reason that puts
individuals in jeopardy of their safety or their health, that
the cost of transferring those patients would likely be borne
through costs that the program, on a proportionate basis, would
incur because not all of the individuals would be individuals
who are being paid for under Medicare, for example.
Mr. Deutsch. Right. But my understanding is that that
transportation, emergency transportation expense, there is no
provision, and actually your staff is probably providing the
answer at this point.
Mr. Hash. Well, it is an answer I had actually sort of
thought of, which was that there was a change in the BBA in the
nursing home PPS system. The change requires that for
individuals who are in a nursing home for what is called a
Medicare Part A stay, a skilled stay, that ambulance services
that are for services that should otherwise be covered by the
nursing home because the person is a resident there, would not
be covered.
If there is an emergency however, like an individual has a
heart attack or some emergency while they are in the nursing
home in a Part A stay, the transportation to the emergency room
and hospital would be a covered service. It is just that
routine transportation, for purposes of services that could
otherwise be provided in the nursing home, is not covered but
an emergency case would be covered.
Mr. Deutsch. So your explanation is that an evacuation in a
pending hurricane would be covered?
Mr. Hash. I would like to discuss that with you further. I
am not sufficiently familiar----
Mr. Deutsch. The good news is that it does not happen very
often.
Mr. Hash. Right.
Mr. Deutsch. But my understanding is that it is
unreimbursable.
Mr. Hash. I would be happy----
Mr. Deutsch. I am sure there is an answer but what nursing
homes have told me is that----
Mr. Hash. That is not reimbursable?
Mr. Deutsch. That is correct, yes. And again obviously it
does not make any sense. So it is just one of these unintended
consequences.
Let me follow up, and I know you have had some questions on
this but not in the kind of detail hopefully we can get into.
On the $1,500 cap, which I have heard your response to Mr.
Burr, as well as earlier, and I think all of us acknowledge
that there is a problem with that, how does HCFA reconcile the
cap on the covered therapies with the skilled nursing facility
OBRA requirements to require all care and services to enable
the residents to attain, and both of us are aware of this, the
highest practical level of physical and psychological and
sociopsychological well-being?
Do the nursing home surveys take this into consideration
that services are not covered, for instance, when issuing
citations? And specifically, has HCFA at this point stopped
enforcement on these issues, with the acknowledgement of the
problems related to the caps?
Mr. Hash. Well, this is an important and complicated
question, Mr. Deutsch. The first thing is that many nursing
home residents are covered under Medicaid and therefore that
program in most States, and I think this is the case in
Florida, that program actually covers therapy services that are
provided to nursing home residents under Medicaid.
So with respect to medically necessary therapy services for
an individual who has a nursing home stay that is being covered
under Medicaid, it would be covered under that benefit.
With respect to an individual who is in a Part A Medicare
stay, that individual actually, the prospective payment rate
includes an allowance for therapy services that is not related
to the $1,500 cap. So there is no cap, dollar cap on therapy
services to residents who are in a Part A stay.
Mr. Deutsch. Right. But percentagewise, and you have
probably and your staff I am sure has it far better than I do;
my guess is we are talking in terms of Medicaid-eligible in a
nursing home, we are talking less than 50 percent almost for
sure. So we still have that gap issue.
Mr. Hash. But the other 50 percent, I believe, is private
pay.
Mr. Deutsch. Right, but private pay in terms of the level
of private pay out of pocket when you are hitting that $1,500
becomes totally cost-prohibitive in terms of families, I mean
in terms of middle class families. Private pay does not mean
that people have millions of dollars to spend in terms of
ancillary care.
I guess I am just trying to--and unfortunately, that 5
minutes goes pretty fast--I am really trying to get a sense,
and your staff has actually met with me on this issue and
talked about trying to get a fix on what really is going on in
facilities and I have met and I am talking with nursing home
operators about what is happening in the real world and talked
we therapists, as well.
And I do not think there is a question that people are
falling through the cracks at this point in time. What is your
best feel for how many people are falling through the cracks? I
mean the typical person is the stroke victim who goes through
their Part A but still is in the nursing home and needs clearly
beyond the $1,500 cap of therapy. What a physician would
normally recommend--that, I think, is just one category of
patient that easily fits into that category.
And I guess the reason why I ask the question the way I
did, first of all, I had a concern that I have expressed to
your staff that I think we really are in a conflict for the
Medicare statute itself in terms of medically necessary
services. But I think we are also in a conflict in terms of the
OBRA requirements of the skilled nursing facilities in terms of
treatment of patients.
Mr. Bilirakis. A brief response to that, please, so we can
let you go.
Mr. Hash. I understand the problem and I think you are
correct in saying there are individuals whose needs are not
being met by this benefit because of the limit. That is why I
said in my statement that this is one of the areas that we
wanted to explore, to make sure that our beneficiaries were
getting access to therapy services that they need. And we do
need to fix that if we can and I think that is a part of our
commitment to working with the Congress to address the therapy
cap issue.
Mr. Bilirakis. Okay. Now the gentleman's time, of course,
has expired.
There will be written questions submitted to you and
because we trust and hope that with all of us working together,
this is on a fast path, we would hope that those responses will
be sooner rather than later.
Mr. Hash. I understand, Mr. Chairman.
Mr. Bilirakis. Additionally, I understand your staff is
meeting with our staffs probably later on this week for sure,
so hopefully next week we can sit down around a table and Mr.
Deutsch should hear this--I am not sure whether you were here
when we talked about this earlier but we are going to meet with
Mr. Hash around the table here and try to work things out.
Now prior to that, I wonder; you have admitted, I think,
and I understand that others have been talking to the White
House and they have admitted that there are areas where you can
have administrative fixes.
Mr. Hash. Yes, sir. And we have tried to take those
actions.
Mr. Bilirakis. Could you maybe share those with us at the
gathering that we have hopefully next week?
Mr. Hash. Yes, sir.
Mr. Bilirakis. If you can, that way maybe we can put those
aside and work on the areas that possibly we need to be further
involved in.
Mr. Hash. Yes, sir.
Mr. Bilirakis. If there is nothing more, we very much
appreciate your taking the time. I know you had something else
to do and we kept you considerably longer than we had hoped to.
Mr. Hash. I appreciate it. I am glad to have the
opportunity and I think this was a very useful and valuable
exchange. It helps to obviously form the basis for our working
together to address this in the weeks ahead.
Mr. Bilirakis. Thank you. Thank you very much.
The next panel consists of Dr. Murray Ross, executive
director of the Medicare Payment Advisory Counsel that we
fondly refer to as MedPAC; Mr. Daniel L. Crippen, director of
CBO; and Mr. William J. Scanlon, director of Health Financing
and Public Health at GAO.
Gentlemen, first I want to thank you for your patience and
your consideration. I think all of you have gone through this
before so you know what that can be like. I also apologize
because we lost our panel, too, and that always is what
happens. That is why I keep telling the staff that we should
not have these large witness panels because invariably that is
what happens. By the time the third panel gets up here, God
only knows how many people will be here.
So you have 5 minutes. Your written statement, of course as
you know, is already a part of the record. We would hope that
you would supplement and complement that. We will kick it off
with Dr. Ross. Please proceed, sir.
STATEMENTS OF MURRAY N. ROSS, EXECUTIVE DIRECTOR, MEDICARE
PAYMENT ADVISORY COMMISSION; WILLIAM J. SCANLON, DIRECTOR,
HEALTH FINANCING AND PUBLIC HEALTH, GENERAL ACCOUNTING OFFICE;
AND DAN L. CRIPPEN, DIRECTOR, CONGRESSIONAL BUDGET OFFICE
Mr. Ross. Thank you. Good afternoon Mr. Chairman and Ms.
DeGette.
I am pleased to be here representing MedPAC to discuss what
we know and do not know about the implications of the BBA for
beneficiaries and providers in Medicare's traditional fee-for-
service program. I will also discuss very briefly some of our
recommendations that we think would improve Medicare's payments
and preserve access to care for beneficiaries.
The BBA had an ambitious objective and to expect
legislation so sweeping to achieve this objective flawlessly
is, of course, unrealistic. But providers' complaints
notwithstanding, we have no evidence that wholesale changes are
either necessary or desirable.
Now providers' concerns are clearly relevant to any
assessment of the BBA but, at the same time, we must remember
that Medicare's objective is to provide access to high quality
care for beneficiaries. Assessing the implications of the BBA
should therefore focus on whether access to or quality of care
has been impaired and, if so, what can be done about it?
Measuring access is difficult and attributing changes to
access to specific changes in policy even more so. Therefore,
policymakers often look at determinants of access, such as the
financial measures that may affect the supply of providers and
at their willingness to serve Medicare beneficiaries.
During the past year, various indicators have been cited to
demonstrate the impact that the BBA has had on providers. The
hospital industry, for example, has issued several reports
analyzing hospital revenues and margins. A second example is
the closures of home health agencies since the IPS, the interim
payment system, was put in place, and I think Bill Scanlon will
talk to you about those.
In the case of hospitals, MedPAC staff has analyzed the
reports and we believe they somewhat overstate the impact of
the BBA on margins, in some cases by overestimating what
happened to costs in 1998. They do, however, correctly present
its overall direction. Medicare payments are no longer rising
more rapidly than costs.
But what this means for Medicare policy is not yet clear.
First, the pressures that hospitals are facing reflect not only
Medicare's payment policies but also continued pressures on
revenues from other payers.
Second, because hospitals will respond to financial
pressures by attempting to slow cost growth, projected margins
serve only as a gauge of that pressure, not as a prediction of
what will occur.
Industry and policy analysts have expressed concerns that
the new prospective payment system for nursing facilities and
the IPS for home health agencies will make these providers
unwilling to serve Medicare beneficiaries with extensive needs.
Concerns have also been raised about the new system for
determining physician fees. Three studies, one by the HHS
inspector general, that looked at nursing facility access and
two by MedPAC, indicate that these concerns have not yet
generated widespread problems.
To assess concerns about access under the interim payment
system, MedPAC surveyed about 1,000 home health agencies
earlier this year. Virtually all of the agencies we surveyed
accept new patients but the number accepting all new Medicare
patients is now about 75 percent; that is down from about 85
percent before the IPS. About 40 percent of the agencies
reported that they no longer accept certain patients that they
accepted before IPS and 30 percent reported discharging
patients because of the IPS. Agencies identified long-term or
chronic care patients as the ones they no longer admitted or
discharged.
Now while these are consistent with the claim that the IPS
has hampered access, these findings also do not tell the entire
story. First, the changes in payment policy that were put in
place were accompanied simultaneously by policies at HCFA to
reduce fraud and abuse. HCFA, as you know, also adopted the
sequential billing procedure for processing home health claims.
And finally, assessing the impact on beneficiaries is
confounded because we do not know whether the changes in the
use of home health services are appropriate.
Our second survey was intended to assess the effects of
changes in how physicians are paid. The BBA introduced a single
conversion factor that reduced payment rates for surgical
services and generally increased them for other services.
We surveyed 1,300 physicians on their willingness to serve
Medicare beneficiaries and the results were reassuring. Among
physicians accepting all or some new patients, 95 percent
accepted new Medicare fee-for-service patients both in 1997
before the changes were put in place and in early 1999.
The vast number of changes to Medicare's payments make it
essential to continue monitoring access. And MedPAC, along with
GAO and HCFA, will do so. On the payment side, MedPAC's March
and June reports note where we believe policy changes are not
yet warranted and recommend specific targeted policies that
could alleviate some of the concerns regarding access to care
in the future. Let me highlight some of the latter.
There has been a lot of discussion regarding the
prospective payment system for outpatient hospital services
this morning and MedPAC too is concerned with this system. We
feel it is too aggregated, making it likely to overpay for some
services in a group and underpay for others. This could lead to
future access problems for beneficiaries needing services whose
payments fall short of costs. MedPAC recommends that the PPS be
based on the cost of individual services.
And, as you heard, implementing the PPS will reduce
payments for virtually all hospitals and significantly for
specific types of hospitals. MedPAC recommends monitoring
access closely to ensure that access to hospital outpatient
services is not compromised. We also think that consideration
should be given to phasing in the new payment system to help us
detect any problems before they become severe.
The OIG report provides some comfort that anecdotal reports
of access problems for beneficiaries needing skilled nursing
care do not indicate a widespread problem today, but MedPAC is
concerned that the mismatch between payments and costs for some
high acuity patients could cause problems in the future and we
recommend refining the system to improve its ability to predict
the use of nontherapy services and supplies.
In the short run, a PPS for home health care that accounts
for differences among beneficiaries will remedy some of the
concerns about the IPS, but the timetable is very tight. So we
recommended in June that Congress consider a progress for
agencies to exclude a small share of their payments from the
per-beneficiary limits.
In the longer run, ensuring that Medicare beneficiaries
have access to appropriate home health care requires clarifying
the benefit and to that end, we recommend that the secretary
speed development of regulations that would base eligibility
and coverage for those services of clinical factors and
recommend legislation to the Congress to enact them.
Let me make one final recommendation concerning the
physician payments. The problems with the sustainable growth
rate system that updates payments for physicians have received
less publicity than changes in facility payments. But as we
heard earlier today, uncorrected projection errors and possible
wide swings in payment updates raise questions about access
problems in the future to physician services. MedPAC recommends
that the Congress require the secretary to correct estimates
used in the SGR calculations and enact legislation to modulate
swings in those updates.
That concludes my statement and I will be happy to answer
any questions you have.
[The prepared statement of Murray N. Ross follows:]
Prepared Statement of Murray Ross, Executive Director, Medicare Payment
Advisory Commission
Good morning Chairman Bilirakis, Congressman Brown, members of the
Committee. I am Murray Ross, executive director of the Medicare Payment
Advisory Commission (MedPAC), and I am pleased to be here to discuss
what we know and do not know about the implications of the Balanced
Budget Act (BBA) of 1997 for beneficiaries and providers in Medicare's
traditional fee-for-service program. I will also discuss
recommendations that MedPAC made in its two reports to the Congress
earlier this year and other options you may wish to consider.
The changes enacted in the BBA and implemented by the Health Care
Financing Administration (HCFA) reduced Medicare payment rates relative
to what they would have been otherwise and, not surprisingly, have
generated concerns among providers about their effects. Providers'
concerns frequently have been heightened by their perception that the
effects have been more harsh than the Congress intended, or that the
effects, while intended, have nonetheless imposed burdens on providers,
and that there are specific problems with how HCFA has implemented the
law. My testimony today focuses on five types of services--inpatient
hospital, outpatient hospital, skilled nursing, home health, and
physician--that have been the subject of much discussion this year.
Summary
A greater than expected slowdown in Medicare spending began in
fiscal year (FY) 1998 and has continued this year. Medicare spending
rose only 1.5 percent last year, compared with a projection of 5.7
percent by the Congressional Budget Office when BBA was enacted.
Through the first 10 months of FY 1999, outlays are running about 1
percent below the FY 1998 rate for the same period.
Unfortunately, we cannot draw definitive conclusions about what the
slowdown in spending means for providers and beneficiaries. Almost two
years have gone by since the first BBA policies were put in place, but
systematic data for this period are still extremely limited. Moreover,
we cannot easily isolate the effects of the BBA from other changes.
Hospitals, for example, have argued that the changes in Medicare
payments stemming from the BBA are reducing their margins and impinging
on their ability to provide quality care. But the most recent complete
information we have for the Medicare program is from FY 1997, the year
before the BBA took effect. And the limited data we have now do not let
us separate out the effects of Medicare's policies from other changes.
For home health services, we have seen lower than expected outlays,
closures of home health agencies, and declines in the use of services.
But our interpretation of these findings is clouded by other policy
changes, notably efforts by HCFA and the Department of Justice to cut
down fraud and abuse in the home care industry, and by the lack of
clear eligibility and coverage guidelines for home health care.
The BBA had an ambitious objective for Medicare's fee-for-service
program: modernizing payment systems and slowing the growth in spending
while preserving Medicare beneficiaries' access to high-quality health
care. To expect legislation as sweeping as the BBA to achieve this
objective flawlessly is unrealistic. In a number of instances, targeted
changes in statute or in regulation could improve Medicare's payments
and access to care for beneficiaries. But providers' complaints
notwithstanding, we have no evidence that wholesale changes in the BBA
are either necessary or desirable.
How did the BBA change payments to providers?
The BBA enacted the most far-reaching changes to the Medicare
program since its inception. The law reduced payment updates or
otherwise slowed the growth in payments to virtually all fee-for-
service providers. It established, or directed to be established, new
prospective payment systems for services provided by hospital
outpatient departments, skilled nursing facilities, and home health
agencies. Finally, the law revised the mechanism for updating fees for
physician services.
Inpatient hospital services
The BBA changed payments for inpatient hospital services in a
number of ways. For hospitals under Medicare's prospective payment
system (PPS), the law provided for no update to operating payments in
FY 1998 and limited updates in FY 1999 through FY 2002. It required
phased reductions in the per-case adjustments for the indirect costs of
medical education (IME) and, temporarily, for hospitals serving a
disproportionate share (DSH) of low-income patients. And it instituted
a new transfer policy for 10 high-volume diagnosis related groups
(DRGs), reducing the payment rates when hospitals discharge patients in
these DRGs to post-acute care facilities following unusually short
stays.
By themselves, lower updates would have slowed the growth in
payment rates to hospitals for inpatient services but would not have
reduced them. In FY 1998, however, the combined effect of the freeze on
payment rates, smaller IME and DSH payment adjustments, and a small
decline in the case mix index reduced payment rates in absolute terms.
In FY 1999 and later years, however, payment rates should begin to
increase again, albeit at a slower rate than would have occurred in the
absence of the BBA.
Outpatient hospital services
In addition to changes in payments for inpatient services, the BBA
also enacted major changes in Medicare's payments for services provided
in hospital outpatient departments. It eliminated the so-called
formula-driven overpayment under which Medicare's payments did not
correctly account for beneficiaries' cost-sharing and extended the
reduction in payments for services paid on a cost-related basis. The
law also directed the Secretary to establish a prospective payment
system for services that have been paid at least partially on the basis
of incurred costs.
Hospitals have not yet felt the full impact of the BBA provisions
affecting outpatient services. MedPAC estimates that elimination of the
formula-driven overpayment, which took effect in 1998, reduced payments
by about 8 percent. However, the PPS that was to have gone into effect
in January 1999 will not be put in place before next summer. HCFA
originally estimated that the PPS would reduce payment rates by 3.8
percent, on average, but has since revised its estimate of the
reduction to 5.7 percent. These estimates likely overstate the ultimate
reduction, however, as hospitals will have an incentive to code
outpatient services more accurately than they do now.
Services in skilled nursing facilities
The BBA enacted a prospective payment system for services provided
in skilled nursing facilities (SNFs). These services had previously
been paid on the basis of costs, subject to limits on routine services.
Under the new system, payments are intended to cover the routine,
ancillary, and capital costs incurred in treating a SNF patient,
including most items and services for which payment was previously made
under Part B of Medicare. Patients in SNFs are classified under the
Resource Utilization Group system, version III (RUG-III), which groups
patients by their clinical characteristics for determining per diem
payments.
The new payment system slows spending growth for SNF services by
moving these facilities from cost-based reimbursement to federal rates
that are based on average allowable per diem costs in FY 1995, trended
forward using the increase in the SNF market basket index less 1
percentage point. Because nursing home spending--particularly for
ancillary services--grew rapidly between FY 1995 and FY 1997, using FY
1995 as the base for payment purposes reduced payments for many nursing
homes. The PPS is being phased in over a four-year period that began in
1998. Payments in FY 1999 are based on a 50/50 blend of federal rates
and facility-specific rates and will be based entirely on the federal
rates beginning in FY 2001.
Home health services
Before the BBA, home health agencies were paid on the basis of
costs, subject to limits based on costs per visit. The BBA directed the
Secretary to implement a prospective payment system effective October
1999--since delayed by the Congress to October 2000--and established an
interim payment system (IPS) intended to control the growth in spending
until the PPS was in place. The IPS reduced the limits based on costs
per visit and introduced agency-specific limits on average costs per
beneficiary based on a blend of agency-specific costs and average per-
patient costs for agencies in the same region. Home health agencies are
now paid the lower of their actual costs, the aggregate per-beneficiary
limit, and the aggregate per-visit limit. Agencies' per-beneficiary
limits are based on their average costs per beneficiary in FY 1994,
trended forward using the home health market basket index. As with
nursing homes, home health spending grew rapidly in the mid-1990s. For
this reason, using FY 1994 as a base for payment led to substantial
payment cuts for some home health agencies.
Physicians' services
The BBA replaced the volume performance standard system that had
been used to update physicians' fees with a new sustainable growth rate
(SGR) system. It also introduced a single conversion factor for all
physician services that reduced payments for some services while
increasing them for others. Finally, the BBA established requirements
for payments to physicians for their practice costs.
Unlike some of the other provisions of the BBA, changes to
Medicare's payments to physicians occurred almost immediately. Starting
on January 1, 1998, the single conversion factor was implemented along
with the first step toward revising practice cost payments. The effects
of these changes were largest for some surgical procedures, such as
cataract surgery and some orthopedic procedures, where payment rates
fell by 13 percent or more. Payment rates for other services went up,
however. Payments for office visits and some diagnostic services
increased by at least 7 percent.
What has been the impact of these payment changes?
Providers' concerns are clearly relevant to any assessment of the
BBA. But at the same time, we must remember that the primary objective
of the Medicare program is to maintain access to high-quality care for
beneficiaries. Assessing the implications of the BBA should therefore
focus on whether access to or quality of care has been hampered and, if
so, what can be done about it.
In evaluating the potential impact of the BBA on access and
quality, two issues seem especially important. One is how payment
policies for different services may interact to affect providers'
ability and incentives to furnish care. Many hospitals, for example,
furnish most types of services, including skilled nursing services and
home health care. Consequently, they must face the combined effects of
policy changes that have altered payments for virtually every service
they provide.
A second critical issue is whether the new payment systems
adequately reflect predictable differences in patient care costs.
Industry and other analysts have raised this issue with regard to the
new payment system being developed for outpatient hospital services,
the PPS being phased in for skilled nursing facilities, and the IPS for
home health agencies. Where predictable differences in costs are not
taken into account, financial incentives are created for providers to
deny access to care or undertreat identifiable groups of patients.
Sorting out the effects of multiple changes in payment policies and
the introduction of new payment systems on beneficiaries' ability to
obtain the medical services they need is challenging in two important
respects. First, many BBA changes have not yet been fully phased in,
and data to evaluate the impact of recent changes are in many cases not
yet available. Second, measuring access to care is difficult. Because
directly measuring appropriate beneficiary use of services is hard to
do with existing data, policymakers often look at determinants of
access, such as provider availability and willingness to serve Medicare
beneficiaries, as well as the nature and extent of other barriers to
access that beneficiaries face. Interpreting the findings of these
analyses can be difficult, however, because we cannot isolate the
effects of changes in Medicare policy from the effects of other changes
in health care financing or delivery arrangements.
Financial impacts
During the past year, various indicators have been cited as
measuring the financial impact that the BBA is having on providers. The
hospital industry, for example, has issued several reports analyzing
the impact of the BBA on hospital revenues and margins. A second
example is the closures of home health agencies since the IPS was put
in place. Industry and other observers have cited declines in the
number of agencies as putting beneficiaries' access to home health care
services at risk.
Hospitals. The reports issued by the hospital industry contain new
projections, but they do not present new data. In response to
congressional requests, MedPAC staff has analyzed these projections and
found that all of them portray a more adverse impact of the BBA than we
believe to be the case. Some present a particularly inaccurate picture
of the impact in FY 1998 by assuming a rate of increase in costs that
substantially exceeds what we already know to have occurred. Data from
the American Hospital Association's National Hospital Panel Survey
suggest that when complete Medicare cost report data become available
later this year, we will again see a decline in Medicare cost per
discharge for FY 1998, the fifth year in succession.
Although we believe that industry reports somewhat overstate the
impact of the BBA on hospital margins, they do correctly present its
overall direction. As it was intended to do, the law has reversed a
six-year trend of Medicare payments rising more rapidly than the costs
of treating Medicare beneficiaries. Still, two reasons make it
difficult to interpret what changes in total margins mean for Medicare
policy. First, the financial pressure that hospitals are currently
experiencing reflects both changes in Medicare's payment policies and
continued strong downward pressure on revenues from private managed
care plans and other payers. In FY 1997, private payers' payments
dropped by 4 percentage points relative to the cost of treating their
patients, while Medicare payments rose relative to costs. Data for FY
1998 are not yet available, but we have every reason to believe that
the downward pressure from private payers continued as Medicare reduced
its payments. Second, because hospitals can be expected to continue
responding to financial pressures by slowing cost growth--the overall
increase in costs per case for all patients has been below 2.5 percent
for five straight years--projected margins serve only as a gauge of
financial pressure, not as a prediction of what will occur. MedPAC has
seen no convincing evidence that the changes to date have affected
either quality or access in the inpatient sector, but we will continue
to monitor developments.
Home health agencies. To examine whether the closures of home
health agencies may have affected beneficiaries' access to services,
the General Accounting Office (GAO) analyzed the distribution of
closures across urban and rural counties. The agency also interviewed
stakeholders' representatives of state agencies, beneficiary advocates,
hospital discharge planners, and managers of home health agencies--in
34 primarily rural counties that had experienced significant agency
closures or declines in the use of services. GAO concluded that the
closures have had little impact on Medicare beneficiaries to date.
However, the agency noted that beneficiaries who are more costly than
average may face difficulty in obtaining home health care in the future
as agencies change their behavior in response to the IPS.
The GAO study found that while about 14 percent of agencies had
closed between October 1, 1997, and January 1, 1999, more home health
agencies were in existence at the beginning of FY 1999 than at the
beginning of FY 1996. The study found that most of the closures
occurred in urban counties and that about 40 percent of the closures
occurred in three states--Louisiana, Oklahoma, and Texas--that had seen
a large expansion in the number of agencies and that had utilization
rates well above the national average.
Stakeholders interviewed by the GAO reported few access problems
currently. State survey agency representatives, for example, indicated
that adequate capacity continued to exist despite the closures and
reported that they had received few complaints about access to Medicare
home health care. Discharge planners and home health agency managers
reported that beneficiaries living in counties that had lost agencies
still had adequate access through agencies located in adjacent
counties.
Willingness to serve beneficiaries
Industry and policy analysts have expressed concerns about the
case-mix adjuster used in the new PPS for skilled nursing facilities
and the lack of case-mix adjustment in the IPS for home health
agencies. Concerns have also been raised about the new system for
determining physicians' fees.
Skilled nursing facilities. In the case of SNFs, concerns have
centered around the payment weights used in conjunction with the RUG-
III system. Although SNF patients can vary significantly in their use
of ancillary services and supplies such drugs and biologicals, payments
for patients in different RUG-III categories are based on estimates of
the time providers's staff spent furnishing nursing and therapy
services. SNFs may be unwilling to serve patients in some high-acuity
RUG-III groups for whom the costs of services may exceed the payment
rates.
The Office of the Inspector General (OIG) of the Department of
Health and Human Services has undertaken a study to assess these
concerns. The OIG surveyed a random sample of 200 hospital discharge
planners responsible for arranging nursing home care for patients being
discharged from hospitals.
The OIG report concluded that while serious problems in placing
Medicare beneficiaries in nursing homes are not apparent, SNFs are
changing their admitting practices in response to the new payment
system. Two-thirds of discharge planners responding to the survey
reported no difficulty in placing Medicare patients. At the same time,
almost half of the discharge planners surveyed reported that nursing
homes have begun requesting more detailed clinical information about
patients and more often assessing patients directly before making
admissions decisions.
The survey found that some patients have become harder to place,
including those who need extensive services, such as intravenous
feedings or medications, tracheostomy care, or ventilator and
respirator care. These findings are consistent with concerns that
payment weights under the PPS do not account adequately for certain
medically complex patients.
Home health agencies. The IPS for home health agencies has been
criticized because the aggregate per-beneficiary limit is based on
historical patterns of use and does not account for changes in
agencies' patient mix. Industry and beneficiary representatives have
asserted that this limitation has made home health agencies unwilling
to accept patients who are likely to need extensive services.
To assess these concerns, MedPAC contracted with Abt Associates,
Inc., to survey about 1,000 home health agencies in early 1999 on their
experience under the IPS. We also convened a panel of experts familiar
with beneficiaries' problems accessing home health services.
The results of our survey of home health agencies are consistent
with the preliminary information we have on utilization. The agencies
we surveyed generally reported that their Medicare caseloads have
fallen and that the number of visits per user they provide has
decreased. Almost half reported that they had changed the mix of
services they provide, with fewer aide visits being the most common
response. While virtually all of the agencies we surveyed reported that
they are accepting new patients, the share accepting all new Medicare
patients was 75 percent, compared with 85 percent before the IPS was
implemented. About 40 percent of agencies reported a change in
admissions practices--refusing to admit patients that they would have
accepted before the IPS--and 30 percent reported discharging patients
because of the IPS. Agencies most frequently identified long-term or
chronic care patients as those they no longer admitted or have
discharged.
These findings are consistent with the claim that the IPS has
hampered access, but they do not tell the whole story because the
change in payment policy occurred at the same time HCFA was
implementing other policies intended to reduce fraud and abuse,
including stepping up oversight of home health care providers and
imposing a four-month moratorium on the certification of new agencies
in early 1998. The agency also adopted a new procedure for processing
claims for home health care services. Assessing the effect on
beneficiaries of changes in home health agencies' willingness to serve
them is further confounded because we cannot determine whether the
changes in use of home health services observed during the past two
years are appropriate. Medicare's standards for eligibility for and
coverage of home health services are too loosely defined for us to do
so.
Physician services. Three aspects of the new mechanism for setting
physicians' fees have raised questions regarding their impact on
access. First, the introduction of a single conversion factor reduced
payment rates for surgical services, while payment rates for primary
care and other nonsurgical services generally increased. Second, the
Secretary's lack of authority to correct for projection errors and the
potential for oscillations in fee updates under the SGR system have
raised questions about whether updates are appropriate. Because the SGR
is cumulative, uncorrected projection errors affect all subsequent
updates. This happened in 1999, when an unexpected slowdown in
Medicare+Choice enrollment growth led to a smaller than projected
decline in Part B fee-for-service enrollment. Third, the SGR system as
currently designed has te potential for oscillation in fee updates
because of problems with the data and methods used to calculate the
updates. These problems are likely to lead to extreme positive and
negative updates.
To assess the effects of the payment changes introduced in 1998,
MedPAC contracted with Project HOPE to survey 1,300 physicians on their
willingness to serve Medicare beneficiaries. The survey data were
reassuring. Among physicians accepting all or some new patients, over
95 percent were accepting new Medicare fee-for-service patients both in
1997, before the new payment policy changes were implemented, and in
early 1999. The survey also found that only about 10 percent of
physicians reported changing the priority given to Medicare
beneficiaries seeking an appointment. Of those, the percentage giving
Medicare patients a higher priority was almost the same as the
percentage giving Medicare patients a lower priority.
Where do we go from here?
Although there is no systematic evidence to date that
beneficiaries' access to care has been impaired, the vast number of
changes to Medicare payment policy introduced by the BBA make it more
important than ever to monitor access. In our March and June reports to
the Congress, MedPAC noted where we believe policy changes are not yet
warranted and recommended specific targeted policies that could help to
alleviate some of the concerns that have been raised regarding access
to care in the future..
Hospital inpatient services
In our March report, MedPAC concluded that the operating update for
FY 2000 enacted in BBA--1.8 percentage points less than the increase in
HCFA's operating market basket index or 1.1 percent--will provide
reasonable rates. In formulating our recommendation, MedPAC took into
account part, but not all, of the cumulative reduction in costs per
case that has occurred. We noted that hospitals have responded to an
increasingly competitive market by improving their productivity and by
shifting services to other sites of care. At the same time, we
recognized factors pointing to the need for caution in specifying
future updates, including emerging evidence that the decade-long trend
in rising case mix complexity, which automatically increases PPS
payments, may be subsiding. We also questioned whether the unusually
low rate of hospital cost growth observed in recent years can be
sustained without adverse effects on quality of care.
Hospital outpatient services
MedPAC has concerns about the PPS proposed by HCFA for hospital
outpatient services. In basing payments on groups of services, instead
of individual services, the system is likely to overpay for some
services and underpay for others. This could lead to access problems in
the future for beneficiaries needing services whose payments fall short
of costs. In our March report, MedPAC recommended that the PPS be based
on the costs of individual services. Since that recommendation was
made, HCFA has been colleting comments on its PPS proposal, with the
formal comment period ending July 30, 1999. HCFA will review the
comments with the assistance of a private contractor, 3M Health
Information Systems. HCFA then plans to issue a final regulation at
least 90 days before the PPS is implemented.
Implementing the outpatient PPS will reduce payments for virtually
all hospitals but could have much larger effects on specific types of
hospitals. For example, based on HCFA's original estimates--which do
not take into account improvements in coding that will lead to smaller
reductions--small rural hospitals would see a 17 percent decline in
payment rates, and cancer hospitals would see a drop of more than 30
percent. Given these changes, MedPAC recommended that the Secretary
closely monitor the use of hospital outpatient services to ensure that
beneficiaries' access to appropriate care is not compromised.
Consideration should also be given to phasing in the new payment system
to help us detect any problems before they become severe.
Skilled nursing facilities
The OIG report on the willingness of skilled nursing facilities to
continue accepting Medicare beneficiaries provides some comfort that
early anecdotal reports of access problems do not indicate a widespread
problem. Nonetheless, MedPAC remains concerned about the mismatch
between payments and costs for patients who require relatively high
levels of nontherapy ancillary services and supplies could hamper
access in the future. In our March report, we recommended that the
Secretary continue to refine the classification system to improve its
ability to predict the use of nontherapy services and supplies. An
improved classification system would match payments more closely to
beneficiaries' needs for services and help to avoid access problems
among medically complex patients. HCFA has indicated that it is
researching the adequacy of payments under the PPS and will implement
refinements next year if that research indicates changes are warranted.
Home health services
Implementing a PPS for home health care services that accounts for
differences among beneficiaries will help to ensure access for those
who require extensive care. MedPAC is concerned, however, that the
timetable for implementing the PPS is very tight. Accordingly, we
recommended in our June report that the Congress explore the
feasibility of establishing a process for agencies to exclude a small
share of their patients--say 2 percent--from the aggregate per
beneficiary limits. Under our recommendation, Medicare would reimburse
care for excluded patients based on the lesser of actual costs or the
aggregate per-visit limits. MedPAC believes that such a policy should
be implemented in a budget-neutral manner.
In the longer run, ensuring that Medicare beneficiaries have access
to appropriate home health care services will require clarifying the
benefit. To that end, MedPAC recommended that the Secretary speed the
development of regulations that would outline home health care coverage
and eligibility criteria based on the clinical characteristics of
beneficiaries and that she recommend to the Congress the legislation
needed to implement those regulations.
Physicians' services
In part because of their technical nature, problems with the
sustainable growth rate system that determines updates to payments for
physicians' services have received less publicity than concerns about
facility payments. But because uncorrected projection errors and wide
swings in payment updates could raise access problems in the future,
MedPAC recommends that the Congress require the Secretary to correct
estimates used in SGR system calculations every year and that
legislation be enacted to modulate swings in updates.
Mr. Bilirakis. Thank you very much.
Dr. Scanlon?
STATEMENT OF WILLIAM J. SCANLON
Mr. Scanlon. Thank you very much, Mr. Chairman. I am very
pleased to be here today as you discuss the issues that have
arisen regarding the changes made to the fee-for-service
Medicare program in the Balanced Budget Act.
I will focus my remarks today on the changes affecting
several of the postacute care providers, namely home health
agencies, skilled nursing facilities, and outpatient
therapists. We have undertaken several studies to review BBA
impacts for these services at the request of this committee and
others.
Concerns, as you know, have been raised in the industries
involved about the BBA's impacts on beneficiary access and on
the financial viability of providers. The issue is how valid
are these concerns.
The BBA made necessary and fundamental changes, in our
view, to Medicare's payment methods to slow spending growth
while protecting appropriate beneficiary care. Prior to the
BBA, spending for these services, especially home health and
SNF care, was growing very rapidly. No analyses supported why
the growth should be so high and there were significant
concerns that overutilization, inefficient delivery and fraud
and abuse played a role.
While refinements may be required to make the BBA payment
systems more effective, their design intentionally makes
inefficient providers change their practice patterns to remain
in the Medicare business.
The impact of payment reforms on home health agencies has
been very noticeable because Medicare is such a major share of
agencies' business and the interim payment system was
implemented without a transition.
Our findings are very similar to those reported by Dr. Ross
for MedPAC. We reported in May that the number of home health
agencies certified for Medicare had declined 14 percent since
the implementation of the interim payment system and that
utilization had returned to 1994 levels. There has been an
increase in the number of closures since then, though
utilization measures have not been assembled.
Despite this, because of the number of agencies had
virtually doubled between 1990 and 1997, beneficiaries, when we
reported, were still being served by over 9,000 agencies,
approximately the same number that were available in 1996.
Furthermore, the drop in utilization does not appear to be
related to agency closures. Rather, it is consistent with the
incentives that the interim payment system imposes to control
the volume of services provided to beneficiaries and to narrow
the widely divergent and unexplained variation in use.
While access generally has not seemingly been impaired,
there are indications, as Dr. Ross indicated, that some
beneficiaries who are likely to be more costly than average may
have more difficulty obtaining home health services. The
revenue caps imposed by the interim payment system are not
adjusted to reflect variations in patient needs, a problem that
we need ameliorated and will be ameliorated with the
implementation of the prospective payment system.
Turning to skilled nursing facilities, there are several
factors that might suggest that the PPS's impact on the
viability of SNFs would be less severe than is being claimed by
providers.
First, Medicare is a small portion of most skilled nursing
facilities' business. Furthermore, only a quarter of Medicare's
current reimbursement for most facilities is based on the
prospective rate. The remainder reflects the facility's own
historical spending, spending that may be inflated due to the
provision of excessive ancillary services in the past.
Nevertheless, we are here today, 2 days after one of the
largest nursing home chains filed for Chapter XI bankruptcy
protection. We have been reviewing the difficulties of Vencor
and other nursing home chains for the Senate Finance and Aging
Committees. It would appear to us that Vencor and other
companies' difficulties likely relate to much more than simply
the prospective payment system for Medicare.
Overall, the skilled nursing facility prospective rates may
have actually been set too high on average and thus
overcompensate rather than undercompensate providers.
Nevertheless, it seems that certain modifications to
prospective payment may be appropriate.
As Dr. Ross also indicated, there is evidence the payments
are not being appropriately targeted to patients who require
costly care--in Mr. Hash's terms, the high acuity patient. The
potential access problems that result for such patients if
Medicare underpays for their care will likely lead to
beneficiaries remaining in acute care hospitals longer rather
than foregoing care, an important point to remember.
HCFA is aware of the situation, as you have heard, and is
working to address the problem.
Finally, let me comment on where the BBA imposed a fee
schedule on all outpatient therapy services and replaced the
$900 cap on therapy provided by independent therapists with the
$1,500 cap on outpatient physical and speech therapy and a
separate $1,500 cap on occupational therapy.
In our view, these caps represent a legitimate attempt to
control service use to avoid utilization increases and avoid
eliminating the savings to be generated from all the changes in
provider fees that have been mandated by the BBA. The per-
beneficiary caps, furthermore, are unlikely to curtail services
for the vast majority of outpatient therapy users, principally
because the principal provider of outpatient therapy, hospital
outpatient departments, are exempted from the cap.
However, even though the caps may be important to generate
some control over use, the caps do not take account the
differences in patient needs, and restricting coverage for
patients who have a genuine need for services is very
problematic.
Therefore, HCFA's efforts to try and design a needs-based
payment system taking into account clinical factors, as
mandated by the BBA, is critical.
In conclusion, I would note that the BBA made necessary and
fundamental changes to Medicare's payment methods for many
providers in order to slow spending growth while preserving
appropriate beneficiary care. Further refinements, as you have
noted, are required to make these systems more effective.
However, these systems' intent is to require inefficient
providers to adjust their practice patterns to remain viable.
It is important that all the changes that we consider and
any change that is enacted be based upon the most complete and
solid information that is available. To prematurely change this
would undermine the intent and goal of BBA, which are essential
to the long-term sustainability of the Medicare program. Thank
you very much, Mr. Chairman. I would be happy to answer
questions you may have.
[The prepared statement of William J. Scanlon follows:]
Prepared Statement of William J. Scanlon, Director, Health Financing
and Public Health Issues, Health, Education, and Human Services
Division, GAO
Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today as you discuss the effects of the Balanced Budget Act of
1997 (BBA) on the Medicare fee-for-service program. BBA set into motion
significant program changes to both modernize Medicare and rein in
spending. The act's constraints on providers' fees, increases in
beneficiary payments, and structural reforms together were projected to
lower Medicare spending by $386 billion over the next 10 years. Because
some BBA provisions have only recently been implemented or have not yet
been phased in, the act's full effects on providers, beneficiaries, and
taxpayers will remain unknown for some time.
BBA was enacted in response to continuing rapid growth in Medicare
spending that was neither sustainable nor readily linked to
demonstrated changes in beneficiary needs. The act's payment reforms
represented bold steps to control Medicare spending by changing the
financial incentives inherent in payment methods that, prior to BBA,
did not reward providers for delivering care efficiently. To date, the
Congress has remained steadfast in the face of intense pressure to roll
back certain BBA payment reforms while waiting for evidence that
demonstrates the need for modifications. Calls for BBA changes come at
a time when federal budget surpluses and lower-than-expected growth in
Medicare outlays could make it easier to accommodate higher Medicare
payments. However, as the Comptroller General cautioned in July, the
surpluses are merely projections and could fall short of expectations
and the imperative remains to find the reforms that will make Medicare
sustainable and affordable for the longer term.<SUP>1</SUP>
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\1\ Medicare Reform: Observations on the President's July 1999
Proposal (GAO/T-AIMD/HEHS-99-236, July 22, 1999).
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My comments today focus on the reforms governing payments to three
providers of post-acute care services--home health agencies (HHA),
skilled nursing facilities (SNF), and providers of outpatient
rehabilitation therapy. Among BBA's changes affecting various
providers, these reforms are farthest along in their implementation.
Furthermore, it is important to consider the payment policies for these
providers together because changes to payments for one of them could
affect the costs and utilization of another.
In brief, providers of such post-acute care services as home health
care, SNF care, and rehabilitation therapy may have to change their
service delivery practices as a result of BBA payment reforms, which
seek to make Medicare a more efficient and prudent purchaser. Calls to
amend or repeal these BBA changes may be premature until information is
available to identify and distinguish between desirable and undesirable
consequences. At the same time, imperfections in the design of BBA-
mandated payment systems require attention. The design details of these
systems are key to ensuring that payments are not only adequate in the
aggregate but are also fairly targeted to protect individual
beneficiaries and providers.
With regard to home health care, the effect of the interim payment
system on HHAs has raised concerns. Our May 1999 analysis indicated,
however, that the reductions in the number of HHAs and changes in home
health utilization were consistent with the incentives of the interim
payment system to control the rapid and unexplained growth that had
preceded the BBA.<SUP>2</SUP> Furthermore, we found little evidence
that appropriate access to Medicare's home health benefit has been
impaired. The interim payment system, however, is not an appropriate
payment method for the long term because it does not adjust payments
for differences in beneficiary needs. Therefore, it is important to
implement the BBA-mandated prospective payment system (PPS), scheduled
for October 1, 2000. In ongoing work, we are examining the formidable
challenges of designing a PPS with the appropriate unit of payment,
level of payment, case-mix adjustment method, and risk-sharing
mechanism. Our work indicates that the PPS will likely require further
adjustments after it is implemented as more information on home health
costs, utilization, and users becomes available.
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\2\ Medicare Home Health Agencies: Closures Continue, With Little
Evidence Beneficiary Access Is Impaired (GAO/HEHS-99-120, May 26,
1999).
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The SNF PPS was implemented beginning July 1998 with a 3-year
transition to fully prospective rates; thus, time for providers to
adjust to the payment change has been built into the implementation
schedule. Our ongoing work examining whether the PPS is causing
financial problems for some SNFs suggests that factors in addition to
the PPS have contributed to fiscal difficulties. Nevertheless, certain
modifications to the PPS may be appropriate, as there is evidence that
payments are not being adequately targeted to patients who require
costly care. The potential access problems that may result if Medicare
underpays for high-cost cases could lead to beneficiaries' staying in
acute care hospitals longer, rather than foregoing care altogether.
HCFA is aware of this potential targeting problem and is working to
develop a solution.
Beginning this year, BBA imposed an annual $1,500 per-beneficiary
cap on payments for outpatient physical and speech therapy combined and
a separate $1,500 cap on outpatient occupational therapy, while
exempting hospital outpatient departments from these caps. The act also
replaced reasonable cost reimbursement for these services with payment
under a fee schedule. The caps reflect a legitimate need to constrain
service use. While not calibrated to accommodate variation in
beneficiary needs, the per-beneficiary caps are unlikely to curtail
access to services for the vast majority of outpatient therapy users.
Only a small share of beneficiaries receiving therapy services use
outpatient therapy extensively. Further, most of those users with
greater needs will likely have access to hospital outpatient
departments, which are not subject to the $1,500 caps. In addition,
owing to HCFA's partial approach to enforcing the caps while year 2000
adjustments are made to Medicare's automated systems,
noninstitutionalized beneficiaries can avoid having the caps curtail
service coverage by switching providers. However, the caps may restrict
coverage for some nursing home residents, resulting in their having to
pay out-of-pocket or seek payment from other sources, such as Medicaid,
for therapy services. Studies are under way or planned to better
measure the effect of the caps and how they might be adjusted. BBA also
required HCFA to recommend a need-based payment system, which could
help better target payments toward beneficiaries who genuinely require
more services than allowed under the current dollar limits.
background
The Medicare program consists of two parts: ``hospital insurance,''
or part A, which covers inpatient hospital, skilled nursing facility,
hospice, and certain home health care services, and ``supplementary
medical insurance,'' or part B, which covers physician and outpatient
hospital services, outpatient rehabilitation services, home health
services under certain conditions, diagnostic tests, and ambulance and
other medical services and supplies.
Prior to BBA payment reforms, Medicare experienced rapid growth in
the services beneficiaries receive after a hospitalization (also called
post-acute-care services), primarily due to increased utilization.
During much of the 1990s, home health care was one of Medicare's
fastest growing benefits; between 1990 and 1997, Medicare spending for
home health care rose at an annual rate of 25.2 percent. Several
factors accounted for this spending growth, most notably the relaxation
of coverage guidelines. In response to a 1988 court case, a change in
the coverage guidelines essentially transformed the benefit from one
that focused on patients needing short-term care after hospitalization
to one that serves chronic, long-term-care patients as
well.<SUP>3</SUP> The loosening of coverage and eligibility criteria
contributed to an increase in the number of beneficiaries receiving
services and the volume of services they received. Associated with this
rise in utilization was an almost doubling in the number of Medicare-
certified HHAs to 10,524 by 1997.
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\3\ Duggan v. Bowen, 691 F. Supp. 1487 (D.D.C. 1988).
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Also contributing to the historical rise in home health care
spending were a payment system that provided few incentives to control
how many visits beneficiaries received and lax Medicare oversight of
claims. As we noted in a previous report, even when controlling for
diagnoses, substantial geographic variation existed in the provision of
home health care, with little evidence that the differences were
warranted by patient care needs.<SUP>4</SUP> Additional evidence
indicates that at least some of the high use and the large variation in
practice represented inappropriate billings and unnecessary
care.<SUP>5</SUP> Medicare oversight declined at the same time that
spending mounted, contributing to the likelihood that inappropriate
claims would be paid. To begin to control spending, BBA implemented an
interim payment system for HHAs beginning October 1, 1997. A PPS is
scheduled to be implemented for all HHAs on October 1,
2000.<SUP>6</SUP>
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\4\ Medicare: Home Health Utilization Expands While Program
Controls Deteriorate (GAO/HEHS-96-16, Mar. 27, 1996).
\5\ Medicare: Improper Activities by Mid-Delta Home Health (GAO/T-
OSI-98-6) and Office of the Inspector General, Department of Health and
Human Services, Variation Among Home Health Agencies in Medicare
Payment for Home Health Services (July 1995). Our 1997 analysis of a
small sample of high-dollar claims found that over 40 percent of these
claims should not have been paid by the program. See Medicare: Need to
Hold Home Health Agencies More Accountable for Inappropriate Billings
(GAO/HEHS-97-108, June 13, 1997).
\6\ BBA required the HHA PPS to be in place in fiscal year 2000.
Subsequent legislation delayed the implementation by 1 year and
required that there be no transition to the PPS.
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As required by BBA, on July 1, 1998, SNFs began a 3-year transition
to a PPS, under which providers are paid a prospective rate for each
day of care. Previously, SNFs were paid the reasonable costs they
incurred in providing Medicare-covered services. Although there were
limits on the payments for the routine portion of care (that is,
general nursing, room and board, and administrative overhead), payments
for ancillary services, such as rehabilitative therapy, were virtually
unlimited. Because higher ancillary service costs triggered higher
payments, facilities had no incentive to provide these services
efficiently or only when necessary. Thus, between 1992 and 1995, daily
ancillary costs grew 18.5 percent a year, compared to 6.4 percent for
routine service costs. Moreover, new providers were exempt from the
caps on routine care payments for up to their first 4 years of
operation, which encouraged greater participation in Medicare.
Rehabilitation therapy comprises a substantial portion of the post-
acute-care services provided by SNFs and other providers, such as
rehabilitation therapy agencies and comprehensive outpatient
rehabilitation facilities. Under BBA, the prices of therapy services
provided in outpatient settings are controlled by a fee
schedule.<SUP>7</SUP> Generally, when prices are fixed, providers can
compensate by increasing the volume of services delivered. To control
volume, coverage for outpatient therapy is now limited to $1,500 per
beneficiary for physical and speech therapy, with a separate $1,500
per-beneficiary limit for occupational therapy. Hospital outpatient
departments are exempt from these coverage limits.
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\7\ Payments for inpatient rehabilitation therapy services, such as
those provided by SNFs, HHAs, and rehabilitation facilities, are not
subject to the fee schedule and are paid under other rules. In
addition, outpatient therapy provided by critical access hospitals is
not subject to the fee schedule.
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little evidence to date of impaired access to home health services, but
future payment system will require refinements
By October 2000, HCFA is required to establish a new PPS for home
health care--with a fixed, predetermined payment per unit of service,
adjusted for patient characteristics. Until that time, HHAs are paid
under the BBA-mandated interim payment system. Although concerns have
been raised about the effect of the interim system, our May 1999
analysis showed little evidence that appropriate access to Medicare's
home health benefit has been impaired under this payment method.
Nevertheless, a home health PPS is a more appropriate payment tool
because it can align payments with patient needs. Designing an adequate
home health care PPS, however, poses substantial challenges.
The pre-BBA payment system had controls for payments per visit but
left volume unchecked. Since enactment of the BBA, home health agencies
have been paid under the interim payment system, which attempts to
control the costs and amount of services provided to each beneficiary.
Indeed, our work indicates that overall home health utilization in the
first 3 months of 1998 had declined since 1996, but utilization was
about the same for a comparable period in 1994. Moreover, the sizeable
variation in utilization between counties with high and low use has
narrowed. Although these changes occurred at the time that about 14
percent of HHAs closed their doors to Medicare business, we found
little evidence that beneficiary access to services was inappropriately
curtailed.
The PPS should be a substantial improvement over the interim
payment system because payments will reflect current beneficiaries and
their needs rather than historical spending patterns. However, our
ongoing work on this subject shows that a number of design issues
remain and the payment system will likely require continued adjustments
even after implementation of the PPS next year. HCFA will pay HHAs a
per-episode rate for up to the first 60 days of services to a patient.
Such per-episode payments are designed to balance competing goals of
controlling service provision while giving HHAs flexibility to vary the
intensity or mix of services delivered during the episode. Evidence
indicates that HHAs do lower their costs in response to prospective
payments for an episode of care. Whether they will inappropriately cut
visits, which could reduce the quality of care and cause Medicare to
pay for services that were not delivered, remains to be seen. Under
this prospective payment approach, HHAs also have incentives to
increase the number of episodes of care provided, which could escalate,
rather than constrain, Medicare spending. HCFA will need to adequately
monitor service provision to ensure that beneficiaries receive the care
they need and the number of episodes are not inappropriately increased.
The design of the case-mix adjustment mechanism is critical to
adequately pay for patients with high services need, yet not overpay
for others with lower requirements. Designing this mechanism requires
detailed information about services and beneficiary characteristics,
and such information is currently available only for a sample of users.
Furthermore, the wide geographic and agency-level variation in service
use indicates that standards of care are not well-defined, nor are the
criteria for who should use the benefit. As a result, the factors that
will be used under PPS for grouping patients with similar resource
needs may not adequately distinguish among types of home health
patients, and the PPS payment adjuster that will be associated with
each patient group may not reflect appropriate cost differences.
Systematic errors could result in overpayments for some beneficiaries
and underpayments for others. Underpayments could lead to impaired
access.
Large variations in historic spending patterns mean that a PPS,
which will be based on average payment amounts, may cause payment
levels to rise for certain HHAs and fall for others. Although the PPS
may incorporate an outlier policy--that is, extra payments for
extremely costly cases--additional mechanisms to moderate payment
changes may be appropriate. For example, an ``inlier'' policy to reduce
the payment for a patient who receives few services may be warranted,
particularly given the fact that multiple episode payments may be made
for a single beneficiary. Policies addressing both extremes of service
use could protect the access of beneficiaries with high needs and
protect Medicare from overpaying for low-cost cases. A risk-sharing
method, to account for cost differences across agencies, could provide
further protection against underpayments or overpayments. Given the
heterogeneous use of this benefit and the unresolved PPS design issues,
moderating payments through risk-sharing might be warranted, even if
such a mechanism would reduce HHAs' incentives to curtail providing
unneeded care.
aggregate payments to snfs are adequate, but refinements needed to help
match payments to patients' service needs
Despite industry charges to the contrary, SNF payment rates under
BBA are likely to provide sufficient, or even generous, compensation
for providers. Nevertheless, the distribution of these payments may be
out of balance, because the current case-mix adjustment method may not
adequately ensure that providers serving high-cost beneficiaries are
paid enough and that those serving low-cost beneficiaries are not paid
too much.
Under the new PPS, SNFs receive a payment for each day of covered
care provided to a Medicare-eligible beneficiary. By establishing fixed
payments and including all services provided to beneficiaries under the
per diem amount, the PPS attempts to provide incentives for SNFs to
deliver care more efficiently. Under the PPS, SNFs that previously
boosted their Medicare ancillary payments--either through higher use
rates or higher costs--will need to modify their practices more than
others. Scaling back the use of these services, however, may not
necessarily affect the quality of care. There is little evidence to
indicate that the rapid growth in Medicare spending was due to a
commensurate increase in Medicare beneficiaries' need for services.
Recent industry reports have questioned the ability of some
organizations that operate SNF chains to adapt to the new PPS. Indeed,
pending bankruptcies have been claimed to be the results of the
Medicare payment changes. Our ongoing work suggests that PPS has been
only one of many factors contributing to the poor financial performance
of these corporations. For one thing, Medicare patients constitute a
relatively small share of the business of most SNFs and for these
corporations, SNFs are only a portion of their overall revenues.
Moreover, the PPS rates are being phased in, to allow time for
facilities to adapt to the new payment system, and most of the payments
are still tied to each facility's historical costs. The reality is that
some corporations invested heavily in the nursing home and ancillary
service businesses in the years immediately before the enactment of the
PPS, both expanding their acquisitions and upgrading facilities to
provide higher-intensity services. Under tighter payment constraints,
these debt-laden enterprises are particularly challenged. Thus, while
SNFs will have to adapt to the PPS constraints, the performance of some
large post-acute providers is a reflection of many Medicare payment
policy changes and strategic decisions made during a period when
Medicare was exercising too little control over its payments. We are
gathering additional information and will report soon on the effect of
the PPS on SNF solvency and beneficiary access to care.
We believe that overall payments to SNFs are adequate. In fact, we
and the Department of Health and Human Services Inspector General (HHS
IG) are concerned that the PPS rates Medicare pays may be too generous.
Most of the data used to establish these rates--from 1995 cost
reports--have not been audited and are likely to include excessive
ancillary costs due to the previous system's incentives and the lack of
appropriate program oversight.<SUP>8</SUP>
---------------------------------------------------------------------------
\8\ The HHS IG recently reported on the inappropriateness of the
base year costs. See Physical And Occupational Therapy in Nursing
Homes: Cost of Improper Billings to Medicare (HHS IG, OEI-09-97-00122,
Aug. 1999).
---------------------------------------------------------------------------
We are concerned, however, that payments for individual
beneficiaries could be inappropriately high or low because of certain
PPS design problems. The first of these problems involves the patient
classification system. The classification system was based on a small
sample of patients and, because of the age of the data, may not reflect
current treatment patterns. As a result, it may aggregate patients with
widely differing needs into too few payment groups that do not
distinguish adequately among patients' resource needs. In addition, the
cost variation for non-therapy ancillary services may not have been
adequately accounted for in the payment rates, which may
inappropriately compress the range in payments. Accordingly, access
problems or inadequate care could result for some high-cost
beneficiaries. Hospitals have reported an increase in placement
problems due to the reluctance of some facilities to admit certain
beneficiaries with high expected treatment costs, which will increase
hospital lengths of stay for these patients. HCFA is aware of the
limitations of the case-mix adjustment method and is working to refine
this system to more accurately reflect patient differences.
Another design problem is that the current case-mix adjustment
method preserves the opportunity for SNFs to increase their
compensation by supplying unnecessary services. A SNF can benefit by
manipulating the services provided to beneficiaries, rather than
increasing efficiency. For example, by providing certain patients an
extra minute of therapy over a defined threshold, a facility could
substantially increase its Medicare payments without a commensurate
increase in its costs.
adverse effect of outpatient therapy caps doubtful, but need-adjusted
payment limits would be better
Questions have been raised about a BBA coverage restriction for a
third group of post-acute-care services--outpatient rehabilitation
therapy. Together with a fee schedule that replaces reasonable cost
reimbursement for these services, BBA imposed an annual $1,500 per-
beneficiary cap on payments for outpatient physical and speech therapy
combined and a separate $1,500 per-beneficiary cap on outpatient
occupational therapy.<SUP>9</SUP> Services provided by hospital
outpatient departments are exempt from the per-beneficiary caps.
---------------------------------------------------------------------------
\9\ Physical therapy includes treatments--such as whirlpool baths,
ultrasound, and therapeutic exercises--to relieve pain, improve
mobility, maintain cardiopulmonary functioning, and limit the
disability from an injury or disease. Speech therapy includes the
diagnosis and treatment of speech, language, and swallowing disorders.
Occupational therapy helps patients learn the skills necessary to
perform daily tasks, diminish or correct pathology, and promote health.
---------------------------------------------------------------------------
Rehabilitation therapy providers have raised concerns that the
$1,500 limits will arbitrarily curtail necessary treatments for
Medicare beneficiaries, particularly victims of stroke, hip injuries,
or multiple medical incidents within a single year. These concerns have
led to several legislative proposals to include various exceptions to
the caps or eliminate them altogether.
Our ongoing work on this topic for Members of this Subcommittee
suggests that eliminating the caps without substituting other controls
could undermine BBA's comprehensive strategy for restricting payments
for outpatient therapy services. Controlling the price for each unit of
service--as is done with the new requirement that that outpatient
therapy providers bill Medicare according to the physician fee
schedule--may not necessarily control Medicare expenditures if
utilization rises. This is particularly likely, given the price and
utilization controls imposed through PPS on other providers of
rehabilitation therapy. Thus, the per-beneficiary caps serve to limit
the volume of services provided.
For the vast majority of beneficiaries, the coverage caps are
unlikely to curtail access to needed services. An analysis by the
Medicare Payment Advisory Commission shows that, in 1996, most users
(86 percent) did not exceed $1,500 in payments for physical and speech
therapy or for occupational therapy.<SUP>10</SUP> Moreover, if the fee
schedule constrains payments as expected, the proportion of
beneficiaries that are unaffected by the caps could be even higher in
1999, because beneficiaries could receive more services before reaching
the per-beneficiary caps than under the former cost-based system.
---------------------------------------------------------------------------
\10\ A July 1998 report sponsored by the National Association for
the Support of Long-Term Care and NovaCare, a rehabilitation services
company, projects that 87 percent of beneficiaries will not exceed the
per-beneficiary cap.
---------------------------------------------------------------------------
Even for beneficiaries exceeding $1,500 in payments under the fee
schedule, mitigating factors exist. First, under the BBA exemption,
Medicare beneficiaries have no limits on coverage for rehabilitation
therapy provided by hospital outpatient departments, which are widely
available nationwide. In addition, the caps will initially not be
applied as specified in BBA. Implementing the caps involves many
programming changes to Medicare's automated information systems that
HCFA is unable to undertake concurrent with its year 2000 preparation
efforts. As a result, HCFA's claims processing contractors will be
unable to track therapy payments on a per-beneficiary basis. Instead,
effective January 1, 1999, HCFA employed a transitional approach to
implementing the caps. Under this approach, each provider of therapy
services is responsible for tracking its billings for each Medicare
patient and stopping them at the $1,500 threshold. The consequence of
this partial implementation is that noninstitutionalized beneficiaries
may switch to a new provider when they have reached the $1,500 limit
under the current provider.
The effect of the per-beneficiary caps on nursing home residents is
less clear. The ability of beneficiaries to switch outpatient providers
under HCFA's partial implementation approach is, practically speaking,
not available to nursing facility residents. Under new billing
requirements, the nursing facility in which the beneficiary resides is
required to bill for outpatient therapy provided to the resident,
regardless of the entity that actually delivered the service.
Therefore, unlike their noninstitutionalized counterparts, nursing
facility residents cannot switch providers to restart the $1,500
coverage allowance. Under these circumstances, some nursing home
residents--like those needing extensive rehabilitation therapy
resulting from such conditions as stroke or hip fractures--could be
vulnerable to out-of-pocket costs for therapy.
Even the risk for these more vulnerable beneficiaries may be
moderated, however, because nursing home residents seeking therapy for
such conditions would likely receive a complement of rehabilitation
services as a SNF inpatient--before the outpatient therapy coverage
limit begins to apply. That is, individuals suffering a stroke or
undergoing hip replacement would likely spend at least 3 days in an
acute care hospital, which, combined with the need for daily skilled
nursing care or therapy, would make them eligible for a Medicare-
covered SNF stay of up to 100 days, during which they would likely
receive therapy services. After their Medicare coverage ends, a nursing
facility resident can continue to receive outpatient therapy services
under Medicare part B, subject to the coverage limits. BBA mandates
that HCFA develop a classification system based on diagnosis to
determine differences in patients' therapy needs and propose possible
alternatives to the caps in a report due January 1, 2001. This report
will be significant in that a need-based system could help ensure
adequate coverage for those beneficiaries requiring an extraordinary
level of services and prevent overprovision to those requiring only
limited amounts.
conclusion
In conclusion, the BBA payment reforms affecting providers of home
health care, SNF care, and outpatient rehabilitation therapy are all
intended to make these providers more efficient. As the reforms begin
to have their intended effects, pressure is building to return to more
generous payment policies. Evidence to date shows that BBA is moving
Medicare in the right direction but that adjustments will be needed
along the way. These adjustments should be based on thorough,
quantitative assessments so that misdiagnosed problems do not lead to
misguided solutions. With the health care of seniors and the tax
dollars of all Americans at stake, policymakers must, in the face of
pressure for increased payment rates, preserve new payment policies
that exact efficiencies but make adaptations when substantiated
evidence supports the need to do so.
Mr. Chairman, this concludes my prepared statement. I will be happy
to answer any questions you or other Members of the Subcommittee might
have.
gao contacts and acknowledgments
For future contacts regarding this testimony, please call Laura A.
Dummit at (202) 512-7114. Individuals who made key contributions to
this statement include Carol L. Carter, Assistant Director; Hannah F.
Fein; James E. Mathews; and Deborah Spielberg.
Mr. Bilirakis. Mr. Crippen?
STATEMENT OF DAN L. CRIPPEN
Mr. Crippen. Thank you, Mr. Chairman. Having listened to
the opening statements by many of your colleagues, as well as
the intense interest of the audience behind us, I have a
feeling that this table is sitting at the eye of another
hurricane.
Mr. Bilirakis. As is this table.
Mr. Crippen. I do not know how far out the clouds reach.
I am pleased to represent the Congressional Budget Office
here today, Mr. Chairman. We were here at the beginning, so it
is only right that we return to the scene of the crime.
My colleagues on the panel today are in a better position
to comment on the actual outcomes in the sense of what is
happening to health care delivery than we are. We do mostly the
input side of this business. But we do have some observations
to make, and my written statement generally reinforces what my
colleagues here have said, so I will try not to be overly
redundant in capturing some of it.
I hope to make three points, Mr. Chairman. First, the
greater-than-expected slowdown in the growth of Medicare
spending stems largely from successful efforts to combat fraud
and abuse and from delays in payments to health care providers.
Second, with one exception, we believe that our estimates of
the effects of the Medicare provisions of the Balanced Budget
Act are still within reasonable ranges. CBO did not anticipate
how home health agencies would implement the interim payment
system for home health services, however, and may therefore
have underestimated the savings of the provisions that apply to
home health.
Third, the factors that are holding down the growth of
Medicare spending, finally, Mr. Chairman, will play themselves
out in the near future, and more rapid growth will then resume.
This is temporary.
Just a quick context of where we are. Between 1980 and
1997, Medicare spending increased at an average rate of 11
percent a year and expanded from 5 percent of the budget to 12
percent. Total outlays for Medicare rose by only 1.5 percent
last year, however, and we may actually have the first absolute
decline in spending this year.
Part of that slowdown was anticipated. The Balanced Budget
Act lowered the projected growth in Medicare spending by an
estimated 4 percentage points in 1998. But the actual rate of
spending growth is considerably slower than the BBA provisions
alone were expected to produce. Other factors appear to have
contributed to the sudden flattening of Medicare expenditures,
including greater compliance with Medicare payment rules and a
longer time for processing claims.
Widely publicized efforts to clamp down on fraud and abuse
in the program have resulted in greater compliance by
providers. Although the total reduction in spending growth
attributable to the improved compliance cannot be quantified
completely, CBO estimates that one response alone to recent
enforcement efforts--less aggressive billing by hospitals--
lowered growth in Medicare spending by 0.75 percentage points
in 1998 alone. So just under one full percentage point by the
coding in the hospitals.
The assignment of patients with respiratory infections to
diagnosis-related groups provides one example of the change in
billing practices. Patients with respiratory infections
generally are assigned to one of two DRGs: respiratory
infections, for which the Medicare payment averaged $7,400 in
1998; or simple pneumonia, for which payments averaged $4,900.
From 1997 to 1998, the number of cases in the higher-paying
DRG--respiratory infections--fell by 43,000 cases, while the
number of cases assigned to the lower-paying DRG--simple
pneumonia--increased by 42,000. That single change in coding
reduced Medicare program spending by about $100 million in 1998
alone.
In addition to these behavioral changes, Mr. Chairman, the
average time for processing Medicare claims rose dramatically
in 1998. Expanded compliance activities, combined with major
efforts to prepare computer systems for the year 2000
contributed to longer payment lags, which can have a
substantial effect on Medicare outlays. For example, an
increase of 1 week in the average time for processing claims
reduces Medicare outlays for the fiscal year by almost 2
percent. That reduction obviously is only temporary because the
delay merely moves outlays into the next fiscal year.
Our observations, Mr. Chairman, on the specific services--
that is, postacute care, physicians' services and in-hospital
care--are very close or the same as my colleagues. I would just
say, as Mr. Scanlon did, to remind us all that when you changed
the payment rules for postacute care in particular, skilled
nursing facilities and home health services, those two elements
of Medicare were growing at an annual rate of 38 percent and 25
percent, respectively.
Economists have a kit bag of trite phrases that they like
to haul out but that are probably not very useful. One is
``This can't go on forever.'' Clearly those kinds of increases
of 40 percent and 30 percent in these two programs could not
have gone on and this gives you some of the reason why the
impacts are apparently as severe as they are.
Let me skip to a final observation, Mr. Chairman, and we
can move to your questions. Although Medicare spending has
slowed dramatically in 1998 and 1999, CBO expects it to resume
growth at an average rate of 7 to 8 percent in the decade after
2000. In particular, spending for home health services is
likely to rebound after 2000, when the prospective payment
system replaces the interim payment system.
Medicare spending is likely to grow even faster after 2010
with the influx of the baby-boom generation into that program.
That growth is due both to the unprecedented increase in
program enrollment and continuing increases in spending per
enrollee. Assuming no change in policy, as we discussed this
morning, the trustees' report projects that Medicare spending
will grow from 2.5 percent of gross domestic product to about 5
percent of GDP in 2030. Such an expansion in program spending
poses an unprecedented challenge to policymakers and to the
country.
Thank you, Mr. Chairman.
[The prepared statement of Dan L. Crippen follows:]
Prepared Statement of Dan L. Crippen, Director, Congressional Budget
Office
Mr. Chairman and Members of the Committee, I am pleased to
represent the Congressional Budget Office (CBO) at this hearing on the
fee-for-service portion of the Medicare program. After many years of
rapid increases, the growth of Medicare spending has slowed sharply in
the past two years. My statement discusses the reasons for that
slowdown and presents CBO's assessment of future trends. I will make
three main points:
<bullet> The greater-than-expected slowdown in the growth of Medicare
spending stems mainly from successful efforts to combat fraud
and from delays in payments to health care providers.
<bullet> With one exception, CBO's estimates of the effects of the
Medicare provisions of the Balanced Budget Act (BBA) of 1997
still appear reasonable. CBO did not anticipate how home health
agencies would implement the interim payment system for home
health services, however, and may therefore have underestimated
its savings.
<bullet> The factors that are holding down the growth of Medicare
spending will play themselves out in the near future, and more
rapid growth will then resume.
trends in medicare spending
Between 1980 and 1997, Medicare spending increased at an average
rate of 11 percent a year and expanded from 5 percent to 12 percent of
the federal budget. Total outlays for Medicare rose by only 1.5 percent
in 1998, however, and are expected to decline in 1999. Part of that
slowdown was anticipated; the Balanced Budget Act lowered the projected
growth of Medicare spending by an estimated 4 percentage points in
1998. The BBA reduced payment rates for many services and restrained
the update factors for payments through 2002. Both fee-for-service
providers and Medicare+Choice plans are experiencing lower increases in
payments as a result.
But the actual rate of spending growth is considerably slower than
the BBA provisions alone were expected to produce. Other factors appear
to have contributed to the sudden flattening of Medicare expenditures,
including greater compliance with Medicare payment rules and a longer
time for processing claims.
Widely publicized efforts to clamp down on fraud and abuse in the
program have resulted in greater compliance by providers with
Medicare's payment rules. Those efforts include more rigorous screening
of claims by Medicare contractors and tougher enforcement of Medicare
laws by the Departments of Justice and Health and Human Services.
Through investigations and lawsuits, those agencies have pursued a wide
range of providers--including hospitals, teaching physicians, home
health agencies, clinical laboratories, and providers of durable
medical equipment--as well as Medicare contractors themselves. Although
the total reduction in spending growth attributable to the improved
compliance cannot be quantified, CBO estimates that one response alone
to recent enforcement efforts--less aggressive billing by hospitals--
lowered growth in Medicare spending by 0.75 percentage points in 1998.
The assignment of patients with respiratory infections to
diagnosis-related groups (DRGs) provides one example of the change in
billing patterns. Patients with respiratory infections generally are
assigned to one of two DRGs: respiratory infections, for which the
Medicare payment averaged $7,400 in 1998; or simple pneumonia, for
which payments averaged $4,900. From 1997 to 1998, the number of cases
in the higher-paying DRG (respiratory infections) fell by 43,000, while
the number of cases assigned to the lower-paying DRG (simple pneumonia)
increased by 42,000. That change in coding reduced Medicare program
spending by about $100 million in 1998.
In addition, the average time for processing Medicare claims rose
dramatically in 1998. Expanded compliance activities, combined with
major efforts to prepare computer systems for 2000, contributed to
longer payment lags, which can have a substantial effect on Medicare
outlays. An increase of one week, for example, in the average time for
processing claims reduces Medicare outlays for the fiscal year by about
2 percent. But that reduction is only temporary because the delay
merely moves outlays into the next fiscal year.
CBO expects that improved compliance with payment rules and longer
claims-processing times will have little or no effect on the rate of
growth of Medicare spending in the longer run. Our projections assume
that payment lags will begin to return to more typical levels late in
2000, with a catch-up in spending and a resumption of normal spending
growth in 2001 and 2002. Most of the projected increase over the next
few years reflects rising expenditures per enrollee. The leading edge
of the postwar baby boom will not reach age 65 until after 2010.
Medicare outlays to date for fiscal year 1999 are actually lower
than they were for the same period last year (see Table 1). CBO's
current projections of aggregate Medicare spending, as updated in July
1999, reflect those lower-than- expected outlays and smaller-than-
expected adjustments of payment rates for inflation in 2000. CBO
assumes that lower payments for home health services and a drop in the
case-mix index (a measure of the relative costliness of the cases
treated in hospitals paid under the prospective payment system) explain
most of the shortfall in Medicare spending so far this year. However,
CBO does not yet have the data needed to update the detailed
projections of spending by category of service that were prepared in
March 1999. Therefore, my discussion of service-specific spending will
reflect the March projections.
TABLE 1. Medicare Outlays Based on the July 1999 Baseline
(By selected fiscal year)
------------------------------------------------------------------------
1990 1998 1999 2004 2009
------------------------------------------------------------------------
In Billions of Dollars
Gross Mandatory Outlays
Benefits...................... 107 210 208 297 440
Mandatory administration and \2\ 1 1 1 1
grants\1\......................
---------------------------------------
Total....................... 107 211 210 298 442
Premiums........................ -12 -21 -22 -34 -53
---------------------------------------
Mandatory Outlays Net of 96 190 188 264 389
Premiums.......................
Discretionary Outlays for 2 3 3 4 4
Administration.................
---------------------------------------
All Medicare Outlays Net of 98 193 191 267 393
Premiums.......................
Average Annual Growth Rate from Previous Year Shown (Percent)
Gross Mandatory Outlays......... ...... 8.8 -0.7 7.3 8.2
Premiums........................ ...... 7.5 3.9 9.6 9.3
Mandatory Outlays Net of ...... 9.0 -1.2 7.0 8.0
Premiums.......................
Discretionary Outlays for ...... 1.5 -2.6 6.8 4.0
Administration.................
All Medicare Outlays Net of ...... 8.8 -1.2 7.0 8.0
Premiums.......................
------------------------------------------------------------------------
SOURCE: Congressional Budget Office.
NOTE: Numbers may not add up to totals because of rounding.
\1\ Mandatory outlays for administration support peer review
organizations, certain activities against fraud and abuse, and grants
to states for premium assistance.
\2\ Less than $500 million
Projections of Spending and Enrollment in the Medicare Fee-for-Service
Program
CBO projects that spending in Medicare's fee-for-service program
will increase from $178 billion in 1998 to $302 billion in 2009 (see
Table 2). That growth will occur despite shrinkage in fee-for-service
enrollment, which will decline by 1.5 million over the next decade, and
cuts in the growth of payment rates for many services.
Spending growth for different services will vary considerably over
the same period. The extent of the recent slowdown in spending has also
varied by type of service, although spending for all services has been
affected by the 1.9 percent drop in fee-for-service enrollment that
occurred in 1998 and the further 0.8 percent decline expected in 1999.
Postacute Care Services. Payments for skilled nursing facility
(SNF) and home health services grew very rapidly during the decade
preceding passage of the Balanced Budget Act. Between 1988 and 1997,
spending for skilled nursing services grew at an average annual rate of
38 percent, while growth in spending for home health services averaged
25 percent a year. That spending growth slowed significantly in 1998.
TABLE 2. Outlays for Medicare Benefits, by Sector, Based on the March 1999 Baseline
(By fiscal year)
----------------------------------------------------------------------------------------------------------------
Sector 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
----------------------------------------------------------------------------------------------------------------
In Billions of Dollars
Medicare+Choice\1\.......... 32 37 41 49 48 60 70 88 88 108 124 141
Fee-for-Service
Skilled nursing facilities.. 13 13 13 14 14 15 16 17 18 19 21 22
Home health................. 15 15 17 16 17 18 20 21 23 24 26 28
Hospice..................... 2 2 2 2 3 3 3 3 3 3 4 4
Hospital inpatient\2\....... 87 86 91 95 99 104 108 112 117 123 129 135
Physicians' services........ 32 32 33 34 35 36 37 38 39 40 41 43
Outpatient facilities....... 17 16 17 18 20 21 23 25 26 28 30 33
Other professional and 12 12 14 15 17 20 22 25 28 31 34 38
outpatient ancillary
services...................
-----------------------------------------------------------------------------------
Subtotal.................. 178 175 186 194 205 217 228 241 255 269 285 302
Baseline Revision, July 1999 n.a. -4 -4 -2 -2 -2 -2 -2 -2 -2 -2 -3
Total................... 210 208 223 242 252 275 297 326 341 375 407 440
Annual Growth Rate (Percent)
Medicare+Choice\1\.......... 26.3 14.0 11.7 18.0 -1.3 25.0 16.7 24.7 0.8 22.8 14.6 13.4
Fee-for-Service
Skilled nursing facilities.. 8.9 -3.8 1.7 5.3 5.1 6.4 6.0 6.4 6.5 6.4 6.4 6.4
Home health................. -14.9 0.8 10.3 -5.8 10.1 6.6 7.2 7.9 7.8 7.4 6.8 6.6
Hospice..................... 1.0 2.5 8.6 6.3 4.6 5.7 5.3 5.7 5.8 5.7 5.8 5.8
Hospital inpatient\2\....... -2.5 -1.5 5.7 4.7 4.5 4.7 3.9 4.1 4.5 4.6 4.9 4.8
Physicians' services........ 3.0 0.6 4.2 2.3 2.4 3.4 2.6 2.8 3.0 3.0 3.3 3.5
Outpatient facilities....... -5.5 -6.6 8.4 8.5 7.1 7.7 7.2 7.4 7.3 7.3 7.6 7.9
Other professional and 0.7 0.6 14.0 13.0 12.5 13.2 12.3 12.3 12.1 11.0 10.7 10.2
outpatient ancillary
services...................
All Fee-for-Service....... -2.1 -1.4 6.4 4.4 5.5 5.8 5.2 5.5 5.8 5.8 5.9 5.9
All Medicare Benefits... 1.4 -0.8 7.2 8.1 4.1 9.5 7.7 10.0 4.4 10.2 8.4 8.2
----------------------------------------------------------------------------------------------------------------
SOURCE: Congressional Budget Office.
NOTES: Numbers may not add up to totals because of rounding. n.a. = not applicable.
\1\ Includes spending for health maintenance organizations paid on a cost basis, certain demonstrations, and
health care prepayment plans, which are paid on a cost basis for Part B services.
\2\ Includes subsidies for medical education that are paid to hospitals that treat patients enrolled in
Medicare+Choice plans.
The most dramatic change was in spending for home health care,
which actually fell by 14.9 percent in 1998. In March 1999, CBO
projected that home health spending would increase slightly in 1999.
However, it now appears that spending for home health care in 1999 and
2000 will be several billion dollars lower than previously anticipated.
The use of home health services seems to have dropped substantially,
probably as a result of both antifraud activities and an unexpectedly
cautious response by home health agencies to the limit on average
payments per beneficiary under the interim payment system. That limit
applies to aggregate payments: payments for individual beneficiaries
may exceed the limit as long as the average payment for all
beneficiaries served by an agency does not exceed the per-beneficiary
limit. Some agencies, however, apparently believe that the limit
applies to each beneficiary and are cutting off services to patients
who have reached the per-beneficiary limit. Thus, the average payment
per beneficiary is well below the allowable amount.
Medicare will replace the interim payment system for home health
services with a prospective payment system in 2001. That system will
remove much of the uncertainty about payments that has contributed to
the current apparent drop in use of services, so spending for home
health services is expected to rebound in 2001 and later years.
SNF expenditures, by contrast, continued to rise in 1998 but at
less than half the rate of growth in 1997--8.9 percent compared with
21.1 percent. The slowdown in spending reflects the implementation of
new prospective payment systems and increases in the time for
processing claims.
The transition to prospective payment systems is expected to hold
down the average annual rate of growth in these categories of spending
through 2001. Spending is then projected to increase through 2009 at an
average annual rate of 6.2 percent for SNF services and 7.5 percent for
home health services.
Inpatient Hospital Services. Medicare payments for inpatient
hospital services fell 2.5 percent in 1998, to $87 billion. The factors
contributing to that drop include a decline in the volume of services
provided (reflecting the drop in fee-for-service enrollment) and
several provisions in the BBA that froze payment rates for most
operating costs, reduced capital-related payment rates by 17.8 percent,
and cut subsidies for medical education. In addition, the case-mix
index fell 0.5 percent in 1998. Preliminary data suggest that the case-
mix index is continuing to drop in 1999. Much of that unprecedented
drop is probably attributable to widespread adoption by hospitals of
less aggressive billing practices following antifraud initiatives that
focused on those practices.
For most hospitals, the BBA limits cumulative increases in payment
rates for operating costs to about 6 percentage points below inflation
in hospital input prices over the 1999-2002 period. CBO projects that
the limit on rate increases, in combination with declining fee-for-
service enrollment, will result in a 1.5 percent drop in payments for
hospital inpatient services in 1999. Those payments are projected to
begin rising in 2000, with annual growth rates averaging 4.5 percent
from 2000 through 2009.
Physicians' Services. Medicare payments for physicians' services
rose 3.0 percent in 1998, to $32 billion. Payments are projected to
remain flat in 1999 and to grow at an average annual rate of 2.8
percent over the next decade, reaching $43 billion in 2009. That growth
rate is a result of payment formulas enacted in the BBA that tie the
growth of per-enrollee expenditures for physicians' services to the
growth of gross domestic product (GDP) per capita. Those formulas
generate annual rate changes that oscillate widely around a smooth
trend. CBO projects stable growth rates, however, because the timing of
those oscillations is impossible to predict.
Outpatient Services. Payments to outpatient facilities--such as
hospital outpatient departments, dialysis facilities, and rural health
clinics--fell by 5.5 percent in 1998 and are projected to decline
another 6.6 percent in 1999. Those reductions result largely from lower
payment rates accompanying the transition to a prospective payment
system for hospital outpatient services. Outpatient payments are
projected to rebound in 2000 and grow at annual rates of 7 percent or
more for the rest of the decade.
Spending for outpatient therapy services and other outpatient
ancillary services--including pharmaceuticals, durable medical
equipment, and chiropractic care--rose only 0.7 percent in 1998 as a
result of reductions in payment rates and a cap on payments for therapy
services performed outside hospitals. Projected payments for
nonphysician professional services and outpatient ancillary services
will grow only slightly in 1999 before taking off again in 2000. Annual
spending growth is expected to average 11.3 percent from 1999 through
2009.
effects of the balanced budget act
In January 1997, CBO projected that net mandatory outlays for
Medicare would grow from $189 billion in 1997 to $288 billion in 2002.
That January 1997 baseline was the basis for CBO's estimate of the
savings from the BBA. CBO estimated that the BBA would reduce net
mandatory spending for Medicare by $6 billion in 1998, $41 billion in
2002, and $112 billion over the 1998-2002 period. As a result, in its
August 1997 analysis of the BBA, CBO projected that net mandatory
outlays for Medicare would grow to $247 billion in 2002, rather than
the $288 billion projected the previous January (see Table 3).
TABLE 3. Comparison of August 1997 and July 1999 Projections of Net
Mandatory Outlays for Medicare
(By fiscal year, in billions of dollars)
------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------
January 1997 Projection....... 189 206 226 250 261 288
Minus Effects of Balanced 0 -6 -16 -29 -20 -41
Budget Act...................
-----------------------------------------
August 1997 Projection........ 189 200 210 220 241 247
July 1999 Projection.......... 187 190 188 202 218 226
July 1999 Projection Minus -1 -9 -22 -19 -23 -22
August 1997 Projection.......
------------------------------------------------------------------------
SOURCE: Congressional Budget Office.
NOTE: Numbers may not add up to totals because of rounding.
CBO's current baseline, prepared in July 1999, projects that net
mandatory Medicare spending will grow from $188 billion in 1999 to $226
billion in 2002. Those figures are $22 billion and $21 billion,
respectively, below the levels projected in August 1997.
Why have the projections changed? Each year CBO updates its budget
projections to account for legislative changes, updated economic
assumptions, and other new information. Since the enactment of the BBA,
the only noticeable legislative effect on Medicare spending has been
the modification of home health payment rates included in last year's
omnibus appropriation bill (Public Law 105-277). CBO estimated that
legislation will increase Medicare outlays by $2 billion in 2000 and
reduce them by $1 billion in 2001. CBO's current projections of
inflation rates are slightly lower than they were in January 1997.
Those lower inflation rates account for about $3 billion to $4 billion
of the annual differences between the August 1997 and July 1999
projections.
Much of the difference between the two sets of projections is
attributable to new information--most notably the unanticipated slowing
of spending growth in 1997 and 1998 resulting from improved compliance
with Medicare payment rules. In essence, the 1997 projections were too
high because CBO did not anticipate the full effects of Operation
Restore Trust--Medicare's program to combat fraud. CBO also did not
foresee the increasing lag in 1998 and 1999 between when services are
furnished and when payment is made. In addition, CBO assumed that
adjustments to Medicare+Choice payments to reflect the risks of plans'
enrollees would be made in a budget-neutral way rather than in a manner
that would reduce spending.
CBO has not revised its estimates of the effect of the BBA on
Medicare spending. With the possible exception of the projections of
the interim payment system for home health agencies, CBO believes that
its estimates of the Balanced Budget Act were reasonable.
conclusion
Although Medicare spending has slowed dramatically in 1998 and
1999, CBO expects it to resume growing at an average rate of 7 percent
to 8 percent in the decade after 2000. In particular, spending for home
health services is likely to rebound after 2000, when the prospective
payment system replaces the interim payment system.
Medicare spending is likely to grow even faster after 2010 with the
influx of the baby-boom generation into the program. That growth is due
both to the unprecedented increase in program enrollment and continuing
increases in spending per enrollee. Assuming no change in policy, the
Medicare trustees project that Medicare spending will grow from about
2.5 percent of GDP in 1998 to 4.9 percent of GDP in 2030 as the last of
the baby boomers enroll in the program. Such an expansion in program
spending poses an unprecedented challenge to policymakers and to the
country.
Mr. Bilirakis. Thank you. Thank you, Mr. Crippen.
Well, we have heard about the decrease in the rate of
increases in Medicare spending. Waste, fraud and abuse. Ms.
Eshoo certainly spoke regarding the area that you referred to,
the coding.
I might add that I have a son who is a primary care
physician and when he opened up his practice he could not
afford, as I was just telling Ms. DeGette, the computerized
system. He had a manual system. So I spent probably the better
part of a month in his office trying to work up that system. I
thought it would be a great opportunity for me to learn, too,
just the grassroots and that sort of thing. And there was
really quite a range in the coding.
As tempted as I was to try to say, ``Hey, this coding ought
to be maybe something higher,'' he would not let me do it, and
that is why he is struggling today.
But there is quite a range there and you can see where
there is an awful lot of room for people to take advantage of
it, and I know that HCFA is aware of that.
In any case, we have heard about the money in that area.
Obviously we are all concerned. I know HCFA is concerned. We
are all concerned with quality care and access to care.
Let me just ask you if you know, and I know Dr. Ross, I
think in your statement you made some sort of comment to the
effect that there is really no evidence to date that
beneficiaries' access to care has been impaired by the BBA. Is
that correct, that you made that comment? At least it was in
your written statement.
Mr. Ross. Yes, yes.
Mr. Bilirakis. Well, let me ask the three of you if you
know, referring now to present access to care and quality of
care as affected by BBA and, in addition to that, how you might
forecast that in the near future. In other words, it might be
good today but you expect that it might worsen or not change in
any way whatsoever.
Do you have comments, Dr. Ross?
Mr. Ross. Well, I think I would like to pick up on one
point that Dr. Scanlon made regarding care in skilled nursing
facilities, which is to try and relate the claims that we have
heard against the reality. MedPAC does not see an issue today,
in part because the system is still being phased in. But we are
concerned about problems that down the road as we go to 100
percent, if we are not correctly matching costs and payments
for the high-acuity groups.
On something like hospital inpatient services, we have been
very cautious. We have said for this year's operating update we
think the current law is okay. We did not go beyond that
because we are taking it, if you will, one step at a time.
I think the thing that is frustrating for all of us, and
Mr. Hash this morning alluded to it, is the absence of data to
try and get a systematic assessment of what is going on out
there.
What we hear a lot about is what is happening to revenues.
What we hear much less about is what are the responses to those
revenue changes? What is that translating to in terms of lower
cost growth, if at all? Are changes in cost growth coming from
improved productivity and behavior changes we want or from
avoiding certain kinds of beneficiaries?
So our efforts, along with some of the other agencies, are
to keep the feelers out, to try to get an assessment,
sponsoring surveys, talking to providers, talking to
beneficiary groups. I am not sure I want to make a prediction.
What I am trying to say is that we are out there looking at it.
Mr. Bilirakis. Dr. Scanlon?
Mr. Scanlon. Our response has been that while access is not
a widespread problem, the quality of information is such that
we cannot be totally convinced that there are not instances
where there is an access issue. So it has been always a
qualified response.
There is also the aspect of it which is that the systems
themselves have not taken into account sufficiently the
differences in patient needs and in particular, they have not
accommodated the high-acuity patient. It applies to home
health. It applies to the therapy caps. It applies to the
skilled nursing facilities. Therefore it is very important that
the systems be adjusted to try and serve those patients.
Now we agree that as these systems are phased in, the
continuing adequacy of resources is a critical issue. There is
a question of how much have we built into the base that will
allow us to feel confident about that foundation. And, as Mr.
Crippen indicated, the rapid growth that was going on before
BBA may suggest that we have built quite a bit into that base.
Mr. Bilirakis. Mr. Crippen?
Mr. Crippen. Mr. Chairman, just a moment because, as I said
at the outset, CBO is less in the business than my colleagues
here of looking at the outcomes of policy; we look at the
inputs. But I would suggest you may have the most current data,
both from being in the districts and listening to providers but
also from whatever you are hearing from constituents.
One thing that I have been trying to watch a little--just
as an indicator--is how much constituent mail you are getting
complaining about the inability to get care under these new
rules? And I do not know where that is at the moment. Certainly
earlier in the year it was not very prevalent.
But you have so many indicators probably that we do not
have. We are dismayed by the lags in the data collection, but
you have some current data of your own.
Mr. Bilirakis. Thank you. Thank you, Mr. Crippen.
Miss DeGette.
Ms. DeGette. Thank you.
Mr. Crippen, following up on this data collection issue, I
am wondering; I have heard all of you say we have inadequate
data; we just have either one side or we have anecdotal
evidence.
What is the status of this data collection and what are we
going to do in the meantime?
Mr. Crippen. I will jump in here and tell you where we
think it stands. There is always a lag in the data by a year or
2--18 months. That lag is a little bit longer even now--
unfortunately at a critical time when these policies are going
into effect--because of all of the other activity going on to
get computers compliant and all of that, with the turn of the
century.
So it is worse than usual at a time when you would like it
to be better than usual. So we are relying, in part, on
anecdotal evidence, although we are getting bits and pieces of
a larger picture.
As I said, if you look at the instant data we can get on
how hospitals are coding diseases as I suggested, it seems to
be that there is now what is euphemistically is called
downcoding or a reverse creep. Over the years, the case mix-
adjuster had been going up, and now it is going down. That is
fairly contemporary data, so it suggests, as part of a larger
picture, but it is not a complete picture.
Ms. DeGette. Thank you.
I want to, Dr. Ross, ask you a question because you talked
about the hospitals and you were kind of lumping the hospitals
together, talking about the effects on them. I guess I would
note we have different kinds of hospitals. We have the for-
profit hospitals, we have the public hospitals, the children's
hospitals, we have the rural hospitals, and it seems to me all
of them probably have different impacts and they probably have
different needs.
Would that not be accurate?
Mr. Ross. Absolutely, there are different classes of
hospitals. We also pay them in a number of different ways--
operating capital, outpatient.
Ms. DeGette. Okay, because one thing I have noted is that
you folks say that implementing this outpatient prospective
payment system is going to reduce payments for virtually all
hospitals but it is going to have a much larger effect on
specific kinds of hospitals.
Is that accurate? And, if so, which kinds of hospitals?
Mr. Ross. I am basing that statement on estimates that
Health Care Financing has done in conjunction with its proposed
rule on this, but it is on small, rural hospitals, it is on the
cancer hospitals that you have heard about, it is on the
teaching hospitals.
Ms. DeGette. So would it not be fair to say, then, that the
outpatient PPS is somewhat uncertain at this point, since it
has not been implemented Mr. Ross. As we have learned with BBA
in general, that is true of any prospective system coming on
line. One of the impacts possibly of the outpatient system that
contributes to the uncertainty is how hospitals will respond
now that they need to code for the purposes of payment, which
they have not before.
There is some feeling that as hospitals learn to code
appropriately for the new system, some of those estimates of
the reductions may be a little overstated.
Ms. DeGette. Now how is this data collection issue going to
impact on our knowledge of the effect of the coding and how
fast that is being implemented? I mean is there a lag there?
Mr. Ross. There will be a lag there, as well.
Ms. DeGette. How long is that lag?
Mr. Ross. I cannot answer that but I presume it will be
probably a couple of years, again depending on how much is done
in terms of a phase-in and what that phase-in looks like.
Ms. DeGette. See, the problem I have is here we are. We are
trying to pass laws, the administration is trying to enact
regulations and when we have these data lags, we are really
legislating in a vacuum.
I do not know if you are even the appropriate people to ask
but do any of you have any thoughts how we could reduce this
lag time?
Mr. Scanlon. I think we have been trying, both MedPAC and
GAO, in terms of looking at the outcomes of these policies to
try and supplement the lack of data that comes from the
administrative systems with the different surveys that we have
done and the Inspector General has undertaken similar kinds of
efforts.
The problem in doing that is that those are labor-intensive
activities in which we are able to contact relatively small
numbers of providers.
Now I hope, in some respects, you can think about these
efforts as representative anecdotes. We go out and get random
samples of anecdotes, but it does not guarantee for us that
there are not other areas in which if we went there, we might
identify a problem.
This is the best information that we can provide you at
this point in time.
Ms. DeGette. Are you doing anything specifically to improve
the data collection?
Mr. Scanlon. Well, we are doing this type of survey effort.
We have done it for home health agencies, which we finished in
the early summer. We are doing it now for skilled nursing
facilities. We are working to be able to use the information
coming out of the administrative claims systems for home health
as soon as it is available by processing the pre-BBA
experience, rather than waiting until new data are available.
We issued a report in May that used the most currently
available data on home health and reported on the first quarter
of 1998. So we are going to try to get you an update as soon as
the data become available.
Ms. DeGette. Maybe we will do the second quarter.
Mr. Scanlon. Well, we like to aim higher than that.
Ms. DeGette. Thank you. Thank you, Mr. Chairman.
Mr. Bilirakis. Thank you. Mr. Burr?
Mr. Burr. Let me ask all of you to comment on the general
question of have our savings in Medicare been greater than
those estimated when we passed BBA 1997?
Mr. Crippen. I should probably take that one since we did
the original estimates. Medicare spending is certainly lower
than we anticipated, even after the BBA's passage and there is
a table in my testimony, Table 3, that shows you what we
thought would happen before and after BBA and what really did
happen, at least up until this point. And the summary statement
is that Medicare spending is about $20 billion lower a year
than we anticipated post-BBA.
But that does not necessarily say that there are more
savings in the policy that you passed. It does turn out that
Medicare spending is less than we expected, but as akin to in
1997, as you know, we were not expecting post-BBA to have these
kinds of surpluses facing us.
So without a change in tax law, we are still getting a lot
more revenue than we thought. What has changed is underlying
behavior, not necessarily the policy change that you voted for
in 1997 on this or anything else.
Mr. Burr. Define ``underlying behavior'' to me.
Mr. Crippen. Well, in the case of Medicare spending, we
think--and again have some anecdotal evidence to suggest that--
the widespread and very public attacks on fraud--and again that
is not to say that all of the change is because there was that
much fraud but it is the reaction of providers to those efforts
that have made people more cautious. It slowed down the
processing, causing people to be more careful about the claims
being filed. In the case of hospitals, it looks like there has
been some diminution in the coding to less expensive treatments
or less expensive DRGs.
Mr. Burr. Utilization is up or utilization is down?
Mr. Crippen. Of?
Mr. Burr. Health care.
Mr. Crippen. I am not quite sure. How one measures it is
not quite clear to me.
Mr. Ross. It is up in some areas and it is down in others.
We have seen fewer claims, for example, for home health
services; we know that. I believe physician services, that the
volume is running about as one would project.
Mr. Scanlon. One of the things that is very difficult to
understand is that some of these patterns, if you look at the
period before the Balanced Budget Act and you look at the home
health, there were areas of the country in which the use of
services was declining when there were no constraints on the
system and there were other areas where it was growing rapidly
and there was no sense that there were differences in the
beneficiary populations in these different areas.
So one of the things that we have not been able to do is
explain why growth was going on before the Balanced Budget Act
and what we have not been able to do for you yet is explain
what has happened since then.
What we have seen is a narrowing of the differences across
those areas, which is consistent with what the Balanced Budget
Act was attempting, but at the same time, we cannot tell you
what is the right level and whether we are achieving it or not
achieving it in particular areas.
Mr. Burr. A reduction in home health could be because some
people tightened their policies because of the fraud and abuse
fear. It could be because some entities do not offer the
services in the same way that they did before. It could be
because seniors are not utilizing the services that are
available to them at the same rate, correct?
Mr. Scanlon. All those are possibilities.
Mr. Burr. All those are possibilities and we do not know
exactly the percentage each one plays, correct?
Mr. Scanlon. That is correct.
Mr. Burr. CBO did a reestimate in March on home care and
found an additional $56 million of savings over and above what
you had projected January 1998, which was $75 billion worth of
savings.
If you did a report January of the year 2000, what do you
think that you would find?
Mr. Crippen. At the moment it would appear that our
estimates of home care spending that we made last spring appear
to have been too high again and that they will be lower this
year than we had projected back in the spring.
Mr. Burr. And are you able to yet draw any conclusion as to
why that spending would be less than what you projected?
Mr. Crippen. We do not yet have good clear conclusions.
Mr. Burr. But it would fall in the three categories that we
just talked about?
Mr. Crippen. Oh, yes. Part of this, too, is in the
implementation. There are some agencies--and I cannot tell you
exactly how widespread it is--maybe some of my colleagues can--
in which the constraint that is being asked of the home health
industry is based on an average per-patient cost, and it is
being applied to each patient, rather than on an average in
some cases. So that obviously will give you a much lower
average cost.
So there are some implementation issues, as well, going on
out there but clearly we got wrong in the case of home health
how much the policy would produce in terms of savings. But, as
I am suggesting, there are lots of other things going on out
there, as well, in addition to BBA.
Mr. Burr. Let me just ask the last question for all three
of you to comment on.
Is it important for an agency when they implement policy to
have knowledge of what the congressional intent was and should
that be included in their process of how they proceed on that
legislation? Or is everything 100 percent left up to their
interpretation?
Mr. Ross. I am not sure you have the right panel here.
Mr. Scanlon. I think you need our general counsel.
Mr. Burr. You will be sufficient.
Mr. Scanlon. My personal sense is that certainly an agency
needs to take into account the sense of Congress in this. Now
the issue, of course, is how to establish clearly the sense of
Congress. And I do know that they attempt to be extremely
faithful to the statutory language. At least in my mind it has
an extreme weight attached to it.
But I do think a response from the general counsel would be
appropriate for you and we would be happy to get it for you.
Mr. Burr. Thank you. Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Bilirakis. Welcome back.
Mr. Brown. I apologize for having to leave.
There have been, I think perhaps in our districts, Mr. Burr
has talked about being home and Mrs. Cubin and the chairman and
all of us, about what we heard in the August recess and prior
to that. At least in my case and I think in some others, we
seem to hear perhaps the most from physical therapists and
occupational therapists and speech therapists in what the caps,
the $1,500 caps have meant to them.
Some survey said that some 13 percent, one out of seven
beneficiaries who need rehabilitative therapy will exceed the
cap in a given year.
Has GAO, Mr. Scanlon, examined the potential impact of the
cap on beneficiaries, the $1,500, and the combining of speech
and physical therapists and what that has meant?
Mr. Scanlon. We looked at it but as in other issues, we
have been handicapped by the lack of current information
regarding users of the cap. But the study that you referred to
was actually done by MedPAC and it did involve looking at who
would exceed the cap.
However, the cap does not apply to people who use
outpatient departments. So a smaller share than 14 percent is
actually going to be affected in terms of not being able to
access coverage, since outpatient departments are the largest
source of therapy services.
It is only if you were to seek services from an independent
therapist or agency that you would be affected by the cap.
Furthermore, there is an issue that exists today, which is
that HCFA has not been able to implement the cap as specified
in the BBA in that because of the year 2000 computer problems,
they have had to rely on voluntary compliance by providers. So
it is providers' responsibility not to bill beyond $1,500. That
does not mean that a beneficiary cannot go to another provider
and have services billed for by that other provider.
Mr. Brown. Do you have evidence that that is happening?
Mrs. Cubin. If there is another provider.
Mr. Scanlon. There is no information one way or the other
on that.
Mr. Brown. Do any of you have an opinion on aggregating the
three and setting a figure so that there is more independence
or more leeway in making rehabilitative decisions?
Mr. Scanlon. I think our feeling is that the most important
step here is to make this cap, if there is going to be a cap,
based on clinical criteria so that differences in patient needs
are taken into account. A cap that is generous enough to
provide therapy to people with more extensive needs may be very
much too generous for people with very minimal needs. It
provides no control over utilization.
One of the concerns about this service, as many other
services, is that the pattern of growth before the Balanced
Budget Act is inexplicable. The independent agencies that exist
in providing therapy are overwhelmingly concentrated in very
few areas of the country. Most of the rest of the country is
relying upon outpatient departments and home health agencies
for their services.
Why there has been this concentration and why there was so
much growth on the part of these agencies was something we did
not understand but we were concerned about. So the idea of
imposing some controls seems to make sense.
Mr. Ross. If I could follow up on that, MedPAC does not
have specific recommendations on the caps but I just wanted to
sort of draw the parallel here with what has gone on in home
health, where once again you implement a payment system. It was
not an individual-specific cap but an agency-specific, per-
beneficiary cap, with no adjustment for case mix, for
differences among individuals. And we see what we get there and
you can anticipate similar situations here until you get the
payments somehow or other to reflect differences in needs among
the beneficiaries.
So I think I can speak for the commission, saying that we
are supportive of that in all instances, that we want to take
health status into account.
Mr. Brown. The home health IPS and the PPS for skilled
nursing homes, I hear over and over seem not to adequately
cover the cost of caring for the sickest patients. Is it wise
to continue implementing these new payment systems, given that
fact, the fact that the sickest seniors may not receive the
care they need? So should we discontinue? Should we change?
What should we do?
Mr. Scanlon. I do not think we should discontinue. I think
we should work very quickly to refine. HCFA is aware of the
problem with the skilled nursing facility prospective payment
system and has commissioned work in order to identify how to
adjust the rates to deal with the higher acuity patient, and we
think that that needs to be done as quickly as possible.
And fortunately, the interim payment system is scheduled to
be replaced by the prospective payment system for home health,
which will be able to discriminate in terms of patient needs
and to adjust rates.
Now I will not add to that sentence at this point
accordingly until we see the system and until we know that it
is going to be able to deal with the differences in patient
needs; until then we cannot be satisfied.
Mr. Brown. Comments from the other two of you about that?
Mr. Crippen. I would just say again that my colleagues know
more about the outcomes than we do, but the payment system for
the skilled nursing facilities, for example, is based on 1995
data, although grown for other factors. But if the case mix of
a particular provider has changed, particularly if the patient
load has gotten more expensive, more expensive kinds of
clientele, then the 1995 base will not represent adequately a
payment structure for them.
So again it is another way of saying what my colleagues
have. We need to be able to apply a case mix adjuster in order
to update a base year, whatever year we choose it to be.
Mr. Ross. And just on the home health, on the IPS, we
MedPAC has noted that the timetable is pretty tight for getting
the prospective payment system in and as Dr. Scanlon says, we
still have to wait and see what it is before we will know how
well it is picking up on the high end. But our commission has
recommended giving some kind of consideration to an outlyer
system, at least under IPS, if for any reason it were to
continue, and we have outlyers under PPS for inpatient
hospital, too, for truly expensive cases that go beyond what
you can get out of your case mix adjuster.
Mr. Bilirakis. Ms. Cubin.
Mrs. Cubin. Thank you, Mr. Chairman.
First of all, I want all of you to know that I understand
that the Congress passed a law that you have to implement. So
please know that my frustration is not directed at you. I guess
it is more directed at what I consider to be a lack of
understanding of conditions in areas like the area that I live
in.
I wanted to ask Dr. Ross first of all, was your response to
Congresswoman DeGette that the largest cuts would be made in
rural hospitals and a couple others, but rural hospitals
specifically?
Mr. Ross. These are the HCFA projections for implementation
of the PPS. Not the largest would be for small, rural hospitals
but they would be only among the classes of facilities that
have large reductions.
Mrs. Cubin. Okay. And forgive me for skipping around. I
have been scribbling these questions all over the place.
The government has accepted the concept in other areas that
every person in America is entitled to some services. Let's
take the telephone, delivering the mail. We all pay the same
for postage. Even though it costs more to deliver on postal
routes in Wyoming where the route might be 150 miles, as
opposed to a 20-block area, we all pay the same amount.
Electricity, everyone is entitled to electricity, even though
we have to have a universal service fund.
What I am submitting to you is that I realize that costs in
rural areas are higher because they are not as efficient as in
urban areas and yet the policy that has been followed as far as
health care is concerned does exactly the opposite. It cuts
money from rural health care providers, whether it is an agency
or a physician or whatever.
Let me tell you what we do in exchange for that, by the
way. Where do you put the nuclear waste that is generated? We
do not get one kilowatt hour of electricity from nuclear power
in Wyoming or in Idaho--I guess Idaho might get a little--but
nonetheless, where do those spent rods go? They go to us.
So it all balances out in the end. And I think in a lot of
areas the government, the administration--not this
administration, all administrations--have seen the light that
it is not ever going to be as effective, as efficient to
provide services in rural areas as it is in urban areas, but
nonetheless, people in rural areas have the same right to
quality medical care that they do in urban areas.
I want you to know for a fact, one of the reasons--and Mr.
Crippen, you said that one of the reasons you think that the
Medicare expenditures are less is because there has been less
fraud and abuse. Well, I am going to tell you what. The
hospitals in Wyoming that are so small, when they get a letter
from the Department of Justice or a doctor, they get a letter
from the Department of Justice presuming they are guilty,
saying, ``If you don't pay up front, then the consequences are
going to be way worse than if you had if we find out that you
were wrong.''
In Wyoming I say it is probably the only place on earth
where you can make a long distance call, get the wrong number,
and not only will you know the person that you reached but they
will be able to give you the right number.
My point is in Wyoming I do not believe that there is very
much fraud. I believe that there could be a small amount of
abuse with certain providers but a small number. And I believe
that there can be mistakes made, and yet we are literally
facing closing of nursing homes, closing of day care centers
for adults.
Dr. Ross, when you said that your findings are that
Medicare patients could find doctors, not in Wyoming. That is
probably true--I believe you--in urban areas where there are
plenty of doctors. But in Wyoming where there are not enough
doctors, my husband is a primary care physician. He has not
taken a single Medicare patient that he charges for--he has
taken some that he takes care of for free--that he charges for
for years.
So I have questions that I am going to submit. One of them
is I want you to justify for me the difference in the allowable
Medicare charge between urban areas and rural areas. Maybe
these are questions I should have asked Mr. Hash but I would
really like to work with you to just explain the differences
that there are between trying to provide health care in urban
areas and rural areas.
I do not think we need a hospital in every community, even
though every community would like one, but we do need
telemedicine. And now, with the cuts that are made in
education, even the family practice centers that we have that
take care of people who cannot get doctors otherwise are
threatened with being closed.
I do not think that it is in any way negligence on your
part that you are not aware of these critical situations, but I
do think you are not aware of them.
So you can each say something because I waited all this
time to have my say and I did not even ask one question. I have
a bunch.
Mr. Ross. I will just say you raise a lot of important
issues and I will be happy to work with you on them.
Mrs. Cubin. Thank you.
Mr. Scanlon. We would be very happy to respond to your
questions and also to provide you some of the work that we have
done, which has--we have tried to take into account the
particular circumstances, the unique circumstances of rural
areas.
In the work that I talked about with respect to home health
care, our primary focus was on rural areas, feeling that in an
area where there are either no agencies or one agency, that the
impact of the BBA changes could have been extremely different
than in an urban area.
So we are sensitive to it but there certainly needs to be a
lot more work done on the issue.
Mrs. Cubin. One last thing I want to say. You talked about
the $1,500 cap on physical therapy and occupational therapy,
that it was per provider. In Wyoming sometimes there is only
one provider in a county that is bigger than the size of
Maryland and Pennsylvania put together. Only one provider.
Mr. Scanlon. That is a reality. The hospital outpatient
department is probably the major safety valve for rural areas
because they are not affected by the cap.
Mrs. Cubin. But our physical therapists in many cases are
not affiliated with the hospital. But my time is up and the
chairman is giving me this look.
Mr. Bilirakis. It is up.
Mrs. Cubin. Thank you very much.
Mr. Bilirakis. That is the first time she has ever been
concerned about the chairman's look.
Dr. Scanlon, you referred to the increases in the past in
Medicare costs and you used the word ``inexplicable.'' Can
these fixes, the needed fixes, the fair fixes, take place
without the concern, fear, risk, whatever the proper words
might be, of going back to the inexplicable?
Mr. Scanlon. I think they can. I mean I think it is
important that we think about the structure that we have
identified in the Balanced Budget Act and understand how to
refine it so that it produces the desirable outcome. We do not
want to go back to the structure that we had before the
Balanced Budget Act, which were systems which had incentives in
there to produce excessive spending and we saw the response
being very consistent with those incentives, and we do not want
to return to the pre-BBA days. We want to refine what we have
now to make sure that the program works effectively.
Mr. Bilirakis. Well, thank you. I know that everything goes
through CBO up here. The power that you guys have is amazing.
You know, we do these things, BBA 1997, feeling that we are
doing the right thing and for the most part, I think it was,
but there is an awful lot of unexpected harm that took place,
too. So I would hope that you would be a part of anything that
we might do can we can use your wisdom in that regard.
As per usual, we will have a number of written questions to
you. I know that you are wiling to respond to them. Again as
you heard earlier, we are sort of on hopefully a fast path
here, so obviously the quicker we get the responses, the more
help they can be.
And I would also say that Mr. Gustafson and others of HCFA
are in the audience, have listened to your testimony. He has
made an awful lot of notes back there, Tom has, so hopefully
you will have been of even more help than ordinarily. Thank you
very much for being here.
The third panel, finally, and these people are always
disadvantaged as the last panel because by then, half the
audience is gone or more and hardly any members are here. You
are very, very important people to what we are trying to
accomplish nevertheless.
Mr. Gail L. Warden, President and CEO of Henry Ford Health
System, Detroit, Michigan. He is here on behalf of the American
Hospital Association. I do not know whether Mr. Dingell--I know
he is trying to get here. He is on his way and he would like to
make his own introduction, I am sure.
Miss Sally Rapp, independent owner of Saint Francis
Extended Care, Pleasanton, California on behalf of the American
Health Care Association. Miss Nancy Roberts, President and CEO
of the Kent County Visiting Nurse Association, Warwick, Rhode
Island on behalf of Visiting Nurse Association of America and
National Association for Home Care.
Dr. Richard F. Corlin, speaker of the House of Delegates,
American Medical Association. And Mr. David P. Holveck, CEO of
Centocor, Melvern, Pennsylvania on behalf of Biotechnology
Industry Organization.
Again your written statement is a part of the record. We
will put the clock at 5 minutes. Hopefully you can stay within
that. And again our apologies for your sitting in that audience
so very long. But again HCFA is here and they will be listening
to you, in addition to us.
So I guess I am going to start with Miss Rapp if I may,
because Mr. Dingell is not here please. Miss Rapp, if you would
proceed, please.
STATEMENTS OF SALLY RAPP, INDEPENDENT OWNER, SAINT FRANCIS
EXTENDED CARE, ON BEHALF OF AMERICAN HEALTH CARE ASSOCIATION;
NANCY ROBERTS, PRESIDENT AND CEO, KENT COUNTY VISITING NURSE
ASSOCIATION, ON BEHALF OF VISITING NURSE ASSOCIATION OF AMERICA
AND NATIONAL ASSOCIATION FOR HOME CARE; RICHARD F. CORLIN,
SPEAKER OF THE HOUSE OF DELEGATES, AMERICAN MEDICAL
ASSOCIATION; DAVID P. HOLVECK, CEO, CENTOCOR, ON BEHALF OF
BIOTECHNOLOGY INDUSTRY ORGANIZATION; AND GAIL L. WARDEN,
PRESIDENT AND CEO, HENRY FORD HEALTH SYSTEM, ON BEHALF OF
AMERICAN HOSPITAL ASSOCIATION
Ms. Rapp. Thank you, Mr. Chairman and members of the
committee for allowing me to appear here today. I would like to
share with you concerns that I have about the impact of the
1997 Medicare cuts on patients, their families and skilled
nursing providers like myself.
My name is Sally Rapp and I am the owner of an independent
skilled nursing facility in Hayward, California. I am here
today on behalf of the American Health Care Association, which
represents 12,000 long-term care providers.
Mr. Chairman, balancing the budget and controlling Medicare
spending are laudable goals but we should not, we must not
balance the budget on the backs of our Nation's frail and
elderly citizens.
As you already know, the unintended consequences of the
1997 budget deal are being felt in every corner of America by
Medicare beneficiaries, their families and caregivers. Studies
show that Medicare cuts have been much deeper than Congress or
the administration expected.
As a result of these cuts, stroke patients are being forced
to choose between learning to walk again or talk again.
Amputees are being denied access to therapies that doctors
consider essential to the rehab process and that these patients
certainly consider essential to being able to simply walk
again. And patients with the most medically intense needs are
waiting in hospitals for days, sometimes weeks, to find a
skilled nursing facility that can deliver necessary care. Often
these patients are forced to use a facility far away from
families or loved ones.
Policymakers on both sides of the aisle agree that the
Balanced Budget Act, in the way that it has been implemented,
is a major and detrimental effect on Medicare beneficiaries.
Sixty-five senators have written to President Clinton
acknowledging the severity of these cuts. The well respected
chairwoman of the Medicare Prospective Advisory Commission,
Gail Wilensky, has said and I quote, ``Congress and Medicare
officials should devise some way of increasing payments to
nursing homes for patients who need the most costly and
extensive care.'' I am here to urge you to take that action
this year.
I would like to give you just one example of how these cuts
are affecting Medicare beneficiaries. Linda Jorgensen, who is
in the audience today, is faced with the very real and painful
effects of the arbitrary $1,500 therapy caps as she watches
what they are doing to her father. Linda is from Springfield,
Virginia. Linda's father Victor, a steelworker and a decorated
war veteran, is battling Parkinson's disease, the effects of a
major stroke, and an unsympathetic Medicare policy.
Her father is a resident of Potomac Center, a skilled
nursing facility in Arlington, Virginia. Before the Medicare
cuts took effect, he had been on an intense regime of physical,
occupational and speech therapy. But in February of this year
Linda learned that he had already used two-thirds of his annual
allotment of therapy under the new Medicare caps. Reluctantly,
she and her father's neurologist agreed to stop the therapy to
ensure that they did not exceed the caps too early in the year.
In Linda's case, her foresight was extremely warranted.
Just a couple of weeks ago in the beginning of September, her
dad needed speech therapy for a swallowing problem. Ironically,
Victor met his $1,500 cap just yesterday. Now Linda and her
family are being forced to pay for his essential speech therapy
out of their own pocket.
Linda regards the caps as unfair and inhumane. I regard the
caps as unfair and inhumane. How many Medicare beneficiaries
like Linda's father are there across the country? How many
people who expected Medicare to be there when they needed it
have been let down, abandoned by the system that they have
supported their entire lives since its inception? And for how
long can we ask providers to continue providing uncompensated
care?
The other challenge we face is the new prospective payment
system for skilled nursing care. Implementation is having a
dramatic impact on patients and families, forcing lay-offs of
tens of thousands of caregivers across the country. As you
know, we are concerned that the situation has worsened to the
point that many facilities will opt out of the Medicare
program.
I would like to comment briefly on the recent report from
the Office of Inspector General that Mr. Hash commented on
earlier this morning examining the issue of access to skilled
nursing care.
Despite the report's misleading headline, it shows quite
dramatically that there is a serious problem with access to
skilled nursing care. Perhaps most important is the report's
finding that nearly 60 percent of hospital discharge planners
agree that patients requiring extensive services have become
more difficult to place in nursing homes in the past year.
Our industry, like most industries, agrees to shoulder its
fair share of cuts to help Congress achieve its goal to balance
the budget. I do not think anyone on this panel this afternoon
is asking that the $115 billion be restored to the system.
However, the solutions I am proposing today are targeted to
where the Balanced Budget Act has put patients at risk.
The bottom line is that the deep cuts in Medicare create a
clear and present danger to the Nation's elderly. The problems
are critical and require immediate attention. Let me outline
what we believe to be responsible solutions to these problems.
Mr. Bilirakis. Can you----
Ms. Rapp. Quickly, I will.
First, Congress should pass H.R. 1837, legislation
introduced by Congressmen Burr and Pallone, to trigger
exceptions to the caps for those beneficiaries most at risk,
like Victor. I would like to express my sincere appreciation to
Congressman Burr and Congressman Pallone for their leadership
on this.
Second, Congress, HCFA and MedPAC all recognize the new
payment system for SNFs fails to account for certain Medicare
beneficiaries with high acuity conditions. Therefore Congress
should enact Senate Bill 1500, which would address the
disparity between the cost of providing medically complex
services and funding Medicare currently provides.
Finally, Congress and the administration should take steps
to ensure that the transition to the new Medicare payment
system does not unintentionally disadvantage providers or
seniors. Simply put, providers should have the option to go to
the Federal rate.
Mr. Chairman and members of the committee, thank you for
the opportunity to address you here today.
[The prepared statement of Sally Rapp follows:]
Prepared Statement of Sally Rapp, Owner, St. Francis Extended Care, on
Behalf of the American Health Care Association
Thank you, Chairman Bilirakis and Members of the House Committee on
Commerce, for allowing me to appear before you today. I would like to
use this opportunity to share the concerns of skilled nursing facility
(SNF) providers as we navigate our way through the challenges of the
recently implemented Part B therapy caps and the new SNF prospective
payment system (PPS) brought about by the Balanced Budget Act of 1997
(BBA).
My name is Sally Rapp, and I'm the owner of an independent nursing
facility called St. Francis Extended Care in Hayward, California. I
speak today on behalf of the American Health Care Association (AHCA), a
federation of 50 affiliated associations representing over 12,000 non-
profit and for-profit assisted living, nursing facility, and subacute
care providers nationwide.
Mr. Chairman, controlling Medicare spending is a laudable goal, but
the unintended consequences of the most recent cuts in Medicare have
been severe on patients, families and care providers. Two major policy
changes have hit the skilled nursing facility community with a ``one-
two punch'' from which some providers may not recover. Even more
important is that in many cases, Medicare beneficiaries who need care
in nursing facilities are not getting access to that care.
The arbitrary cap on Part B therapies set at $1500 per year has
affected residents across the country in ways that clearly were not
foreseen. The combined $1500 limit on speech therapy and physical
therapy and the additional $1500 cap on occupational therapy are
threatening patient access to life-enhancing care. This is best
illustrated by looking at a real life examples of how a Medicare
beneficiary's life has been changed.
First, I'd like to recognize Linda Jorgensen, who is in the
audience with us today (recognize). You may have seen Linda and her
father on some recent television ads discussing the challenges patients
and families are facing as a result of the deep1997 BBA cuts.
Linda, a federal worker from Springfield, Va., has been forced to
suspend rehabilitative therapy for her father, a retired steelworker
and decorated war veteran. Linda's father is battling Parkinson's
disease, the effects of a major stroke and an unsympathetic Medicare
policy threatening the care he needs and deserves.A resident of Potomac
Center, a skilled nursing facility in Arlington, Va., her father had
been on an intense regime of speech, physical and occupational therapy.
But, in February, Linda learned he had already used up two-thirds of
his annual allotment under the new caps.
Reluctantly, she and her father's neurologist agreed to stop the
therapy for fear her father would need it more later in the year. She
says she can't afford the therapy herself. Now, she says, her father's
limbs are becoming more rigid and he is in danger of losing mobility.
Linda regards the caps as inhumane. And she is on a personal
campaign to let policymakers know.
Another example involves an 85 year-old woman named Frances.
Frances owned her own hat making shop here in Northwest Washington.
Frances had a stroke early this year and suffered from right-side
paralysis as a result. She could not walk, speak, or take care of
herself in her activities of daily living such as bathing, eating,
dressing, or toileting. She received physical therapy to teach her how
to walk again, and was able to walk from her room to the TV room with a
walker and a nurse aide behind her. Her speech therapy was helping her
to relearn how to swallow and speak again. Unfortunately, she exceeded
the $1500 cap on June 23rd, and now the facility provides care to her
without reimbursement and tries to stretch its resources to prevent any
decline. Frances also received occupational therapy which taught her
how to take a bath by herself, get dressed by herself (with help in the
room if needed), and toilet by herself. She had regained independence
in her life. Unfortunately, Frances has also exceeded her occupational
therapy cap and is now in danger of losing some of the skills and
quality of life she had gained. The facility is doing the best it can
to care for their residents, but 10% have exceeded the speech/physical
cap and about 5% have met or will exceed the occupational therapy cap.
Care for our nation's frail elderly is being rationed, and in many
cases they are not getting the amount of therapy they need. If after
meeting the cap, a resident falls, is hospitalized and needs skilled
therapy in the same calendar year, he/she could face a serious access
problem in finding a home that will care for them for free. Let me
express my appreciation to Congressmen Burr and Pallone for their
leadership on addressing this problem. Medicare beneficiaries would
benefit if Congress would pass S. 1837, legislation introduced by
Congressmen Burr and Pallone. This legislation would address the
arbitrary and capricious nature of the $1,500 annual caps on Part B
outpatient rehabilitation services imposed by the BBA. These caps were
included without the benefit of data or hearings. Mr. Chairman, I
assure you--speaking from the front lines of the skilled care
community, no one who was part of this process could have intended this
cap to create the kind of patient impact we're seeing. Mr. Burr and Mr.
Pallone's legislation would create criteria to trigger exceptions to
the caps for the sickest and most vulnerable Medicare beneficiaries. We
implore you to pass the Burr/Pallone bill (H.R. 1837) to allow for some
exceptions for these caps.
The second blow of the one-two punch is the new prospective payment
system (PPS) for SNFs. Implementation of the new PPS has had a dramatic
impact on providers of skilled care. With a transformation of that
magnitude, the need for corrective adjustments along the way is
inevitable. I come before you today to relay our concerns--and more
importantly, to propose solutions.
Let me bring to your attention a recent report from the Office of
Inspector General (OIG) examining the issue of access to skilled
nursing care. Despite the reports misleading headline and
unsubstantiated conclusions, the report shows fairly dramatically that
there is a serious problem with access to skilled nursing home care
caused by the 1997 Medicare cuts. Here are some facts from the report:
<bullet> ``When asked which types of patients have become more
difficult to place in nursing homes, the majority of discharge
planners (58%) identify patients who require extensive
services,'' according to the OIG. ``These types of patients
typically complex direct nursing care and expensive
medications. They include patients who require intravenous
feedings, intravenous medications, tracheostomy care or
ventilator care,'' the report says.
<bullet> One-third of all hospital discharge planners said it was
difficult to place Medicare patients in SNFs.
<bullet> Sixty-five percent of hospital discharge planners say PPS has
had an effect on their ability to place patients.
One thing is clear: nursing homes are reevaluating the extent to which
Medicare resources will allow them to appropriately care for the
sickest patients. The result is a very real access problem to skilled
nursing services, specifically proven by the OIG's own report, which is
causing backups in hospitals throughout the country. This squeeze has
put SNFs in a difficult situation, and we are concerned about the
impact it will have on Medicare beneficiaries--specifically high-acuity
patients. Yet, Mr. Chairman, the OIG's release of their report is a
significant development because they've served to prove the point that
major dislocations have occurred as a result of the PPS and its
subsequent implementation. Naturally, SNFs will be hard-pressed to
continue to provide service when patients' costs of care exceed the
resources available.
I want to share with you a few examples of the difficulties SNFs
are experiencing under PPS--reports from the front-lines, if you will,
in the skilled nursing field--to illustrate the seriousness of the
problems we face, and the real threat of reduced access to skilled
care.
In Florida, Mrs. Y (89 years of age) arrived at a Lakeland SNF on
March 25th to recover from pneumonia and a chronic urinary tract
infection. Due to her weakened condition she needed respiratory,
physical, occupational and speech therapy plus IV antibiotics to gain
the strength she needed to go home. Mrs. Y returned to her home on May
17th thanks to the excellent care she received at the skilled nursing
facility; however, the Medicare system failed to reimburse the skilled
nursing facility $20,000 worth of direct and ancillary care that were
provided to Mrs. Y, so that she could return to health. This included
$3,000 of pharmacy costs alone. And even though Mrs. Y was in a high
Medicare resource utilization group, she consumed over $350 more a day
in respiratory, IV and other therapies than Medicare paid for. Yet, if
she did not get that care, she would have used up her Medicare days,
then been forced onto Medicaid and probably stayed in the home
indefinitely. Staff at the center report that nearly half of their
Medicare discharges in a typical month consume an average of $8,000 to
$10,000 in uncompensated care. Since the facility's policy is to take
all Medicare recipients regardless of acuity level, the center's
viability is continuing to be severely impacted by the BBA.
In Delaware, Mrs. D, an 85 year old woman, who was recently
recovering from an infection and heart problems in a Delaware hospital.
She was ready for nursing home placement but, because of Medicare cuts,
she had difficulty locating a bed in a SNF, and, as a result, she was
forced to stay in the hospital an extra two weeks. Eventually, a
provider offered to take her to a center in neighboring Maryland
despite the fact that she needed an expensive IV antibiotics at a cost
of $410 a day. Her Medicare level dictated the center would only be
compensated $260 a day for her care. Since then, her doctor has also
prescribed a $1,700 knee brace for which the center will not be
compensated.
In the state of Washington, a locally owned and managed independent
provider operates a 30-bed skilled nursing facility with a nearby
hospital. The facility primarily serves short-term (usually less than
20 days) high-acuity patients--many of whom were patients in the
hospital's oncology department. The facility enabled patients to be
treated by the hospital's doctors and eliminated the need for these
very sick patients to travel between facilities.
The result of PPS on this facility is unmanageable losses of
between $20,000 and $40,000 per month. The unit is well-managed and has
provided uninterrupted high quality care, but it cannot overcome the
fact that so many of its patients are very high acuity and require, in
many cases, expensive treatments and medications that are not
compensated through the PPS rate. If Medicare cuts are not restored,
the facility anticipates it will be left no choice but to close its
doors, creating access problems for its local Medicare beneficiaries.
Additionally, the facility's functions will have to be assumed by
another facility several miles away.
The Medicare cuts that are denying beneficiaries access to care are
not just affecting Medicare beneficiaries, but also are affecting our
employees as well. The bleak outlook for SNFs--the ``open-season on
caregivers'' mentality that seems to prevail in some quarters--is
turning away high quality professional staff. These deep cuts have
forced layoffs of tens of thousands of employees. Mr. Chairman, the job
of skilled care staff is challenging under any circumstances--but I can
say with certainty that these dramatic reductions add a new degree of
difficulty in providing access to high-quality care that Medicare
beneficiaries expect and deserve.
As you know, we are concerned that the situation has worsened to
the point that many facilities will opt out of Medicare altogether.
These cuts are forcing both independent providers and large national
corporations to make difficult choices of whether to provide services
in a system that does not provide adequate resources for care. This
means that Medicare beneficiaries will have less access to needed care.
Mr. Chairman, the bottom line is that the deep cuts in Medicare
create a clear and present danger to the well-being of our nation's
elderly. The problems are critical and require immediate attention. I
would like to outline what we believe to be fair solutions to four
critical challenges--solutions that take into account the constraints
of Congress and HCFA in implementing change.
First: Medicare beneficiaries would achieve great relief if
Congress would pass S. 1837, legislation introduced by Congressmen Burr
and Pallone. Let me, again, express my sincerest appreciation to
Congressmen Burr and Pallone for their leadership on this.
Second--Congress, HCFA and MedPAC all recognize that the new
payment system for SNFs fails to account for certain Medicare
beneficiaries with medically complex conditions. That is especially
true for patients with high utilization of non-therapy ancillary
services, such as prescriptions, respiratory care, IV antibiotics and
chemotherapy. AHCA supports S. 1500, the Medicare Beneficiary Access to
Quality Nursing Home Care Act. To date, there is no House companion,
but we hope the House will follow the lead of Senators Hatch, Domenici,
Kerrey, and Daschle, by supporting similar legislation. S. 1500 would
identify where there are high-cost patients in the PPS system and make
payment add-ons to address the disparity between the cost of providing
medically complex services and the reimbursement Medicare currently
provides.
Third, and to a certain extent also addressed by S. 1500, is the
fact that HCFA and Congress should replace the current inflation rate
update factor for SNFs with a more accurate measurement of the cost of
services they are required to provide. This current market basket
grossly understates the actual market conditions for SNFs because it
understates the annual change in the costs of providing an appropriate
mix of goods and services produced by SNFs. SNFs have dramatically
changed the services we provide and the acuity levels of the patients
we care for. S. 1500 would restore to the SNF market basket the one
percent that BBA cut in 1996 through 1998. This would serve as an
inflation catch up for SNFs. The minus one-percent would continue
through 2001.
Fourth and finally, PPS rates are based on cost reports that date
all the way back to 1995. We believe providers should have the option
of maintaining the current blended rate for the second year of the PPS
transition--currently 75% facility-specific/25% federal--or elect to
move to the full federal rate immediately. This would prevent
facilities that changed the type and volume of Medicare services after
1995--the PPS base year--from being disadvantaged by the transition
rate. Again, this is a matter of equity, and a means of easing the
transition to PPS. We believe this can be done administratively by
HCFA, however HCFA's intransigence requires Congress to act.
Mr. Chairman, as I conclude my remarks, I would like to convey to
the Committee that we know the constraints that exist. That is why
we've worked so hard to put forward solutions that are realistic,
reasonable, responsible and within reach. Each of the actions we
recommend would restore funding that would ensure continued quality and
access to care for Medicare beneficiaries. And that is why each of the
actions we recommend should be adopted for the sake of the patients
entrusted to our care. These solutions can only be achieved in a
bipartisan fashion, and we look to your leadership. Our nation's
seniors expect and deserve no less.
Mr. Chairman and Members of the Committee, I thank you for the
opportunity to be here today. On behalf of AHCA, I want to make clear
our commitment to providing high quality care to America's frail and
elderly. The situation is critical, but it will get worse unless
Congress and the Administration work with providers to fix the system.
Mr. Bilirakis. Thank you, Miss Rapp.
Miss Roberts, please.
STATEMENT OF NANCY ROBERTS
Ms. Roberts. Thank you. My name is Nancy Roberts and I am
the chief executive officer of Care New England Home Health.
Care New England Home Health Division consists of two home
health providers, Kent County Visiting Nurse Association and
Kent Hospital Home Care. Both organizations are Joint
Commission-accredited, not-for-profit, Medicare-certified
agencies located in Rhode Island. The agencies were officially
linked in June of last year when the VNA joined Care New
England Health System. Last year collectively the organizations
provided visits to nearly 10,000 patients.
Mr. Chairman and members of the subcommittee, I am pleased
to be here today to present testimony on behalf of the Visiting
Nurse Association of America and the National Association for
Home Care. We are grateful for your holding these hearings and
considering changes to the Balanced Budget Act of 1997 that
would stop the hemorrhaging of responsible home health
providers and the consequent adverse effects on patients.
The intent of Congress when it passed the Medicare home
health provision in the Balanced Budget Act was to decrease
rising utilization and reduce the associated expenditure. The
leadership and members of VNAA and NAHC both agree that the
policy changes were in order. However, we believe that the
steps taken by the BBA have inadvertently penalized cost-
efficient home health agencies and the patients they serve.
According to HCFA's report in August 1999, nearly 25
percent of all home care agencies in this Nation have closed
since the balanced budget passed. The experience in Rhode
Island is similar, where 20 percent of the Medicare certified
agencies have closed or dropped out of the Medicare program.
Nationally, 15 percent fewer Medicare beneficiaries are
receiving home health care services. The reduction in Rhode
Island is even greater, where 22 percent fewer Medicare
beneficiaries are receiving care.
To investigate the effect of the balanced budget on
Medicare home health beneficiaries, Congress sought the input
of both the GAO and MedPAC. In their reports to Congress in
1999, both confirm that beneficiaries who are most costly to
treat are those at risk of losing access to home health care.
MedPAC found that nearly 40 percent of the agencies
surveyed responded that because of IPS, they no longer admit
all the Medicare patients who they previously would have
admitted. Thirty percent of the agencies reported discharging
certain Medicare patients because of IPS.
While neither report concluded that access to home health
care had become a crisis, I would note that the reports were
based on data from the first quarter of 1998.
A recent study conducted by VNAA of its member agencies
paralleled MedPAC's findings. While VNAs have historically made
every attempt to admit all eligible beneficiaries regardless of
condition or ability to pay, many VNAs are now selectively
admitting patients or must discharge patients earlier than the
optimal time. Many VNAs have made the decision, a difficult
decision, to discontinue their participation in the Medicare
program, limit specialty programs or eliminate rural service
areas.
The VNA and the home care department that I represent has
managed to survive these turbulent times, but just barely. We
have reduced our costs by 25 percent. In order to achieve this
level of reduction, clinical and administrative staff were cut,
staff benefits and salaries were reduced, and some programs and
patient services were eliminated.
Despite these very, very deep cuts, the two organizations
still lost over $1 million in fiscal year 1998. That
represented 17 percent of the total budget. For these two not-
for-profit organizations that depend and rely on charitable
contributions, this loss was significant and had direct
negative impact on our communities and the patients we serve.
As the number of home care providers diminishes, the access
problem is exaggerated. It is not uncommon for a hospital
discharge planner to call as many as a half a dozen home care
providers in search of someone willing to take a patient. Under
IPS, agencies are staffing, and I will put in quotes, ``just
right.'' You may be familiar with the just-in-time method of
inventory management. This is a tool where an organization
wants to reliably get products in their plants just before the
customer needs them in order to save inventory carrying costs.
Well, to some degree home health agencies are being forced to
employ just-in-time, just-right staffing.
Because we are forced to employ this kind of method, just-
right, just-in-time, there are many days when we have limited
staff capacity and have difficulty responding to the unexpected
increases in services. Unfortunately, that leaves many patients
underserved due to limited staffing ability, waiting for
services that they desperately need.
Mr. Bilirakis. Please summarize, Miss Roberts.
Ms. Roberts. To help solve this dilemma, we find hospital
discharge planners looking at reserving slots, scheduling
patients in advance. Agencies establish cancellation lists.
So when I hear that there is not an access problem, I have
to wonder. I think it is easy to see that the real victims in
this situation are our patients and the communities that they
serve.
In conclusion, I would offer the following recommendations
on behalf of the Visiting Nurse Association and NAHC.
First, to eliminate the scheduled 15 percent additional cut
scheduled for October 1, 2000. Second, target specific
resources through some sort of an outlyer provision to high-
cost, high-need patients to ensure that these eligible
beneficiaries have access to needed home care services.
Third, increase the IPS per-visit cost limit. And finally,
provide relief from financially disabling overpayment.
I thank you for this opportunity to offer this testimony.
[The prepared statement of Nancy Roberts follows:]
Prepared Statement of Nancy Roberts, President and CEO, Kent County
Visiting Nurse Association on Behalf of the Visiting Nurse Associations
of America and the National Association for Home Care
Introduction
Mr. Chairman and Members of the Subcommittee: My name is Nancy
Roberts, and I am President and Chief Executive Officer of the Kent
County Visiting Nurse Association (VNA), which is located in Warwick,
Rhode Island.
On behalf of the Visiting Nurse Associations of America (VNAA) and
the National Association for Home Care (NAHC), I respectfully submit
the following joint comments and recommendations for the public record.
The Kent County VNA is an accredited, Medicarecertified,
communitybased home health and hospice agency, which was founded in
1908. Our staff of 175 consists of registered nurses; physical,
occupational and speech therapists; home care aides; medical social
workers; and clergy and volunteers. We often serve the most costly and
chronically-ill patients in our community, regardless of their ability
to pay. In 1998, we visited over 6,000 patients.
Mr. Chairman and Members of the Subcommittee, the Kent County VNA
is committed to providing quality home health care to all patients in
the communities we serve. However, I am deeply concerned that the
changes to the Medicare home health program made by the Balanced Budget
Act of 1997 (BBA '97) threaten the viability of my agency and the cost-
efficient health care that we provide in our communities. I am grateful
to you for your leadership in holding this hearing and for your
consideration of legislation that would stop the hemorrhaging of
responsible providers from the Medicare home health program and the
consequent, adverse effect on patients.
The following data illustrate the dramatic changes that have
occurred to the Medicare home health program since the passage of
BBA'97:
<bullet> According to HCFA data from its OSCAR files, as of August 18,
1999, there have been 2486 home health agency closures, nearly
25% of all home health agencies in the United States.
<bullet> Approximately 545,270 fewer Medicare beneficiaries received
home health services in 1998 than in 1996. The change
represents a 15.2% reduction in patients served.
<bullet> Home health reimbursement has decreased 29% since 1996.
<bullet> Medicare home health spending is now projected by the
Congressional Budget Office (CBO) to be reduced by $48 billion
over five years (FY 1998 2002), rather than by $16.1 billion as
initially projected at the time BBA'97 was passed.
<bullet> In 1997, home health care represented only 9% of Medicare but
was slated for about 14% of the reductions in Medicare
spending. Currently, the home health program comprises less
than 7% of the Medicare program and is now projected to absorb
24% of the Medicare cuts between FY 19982002.
What do these numbers mean in terms of beneficiaries' access to home
health care?
Congress passed the BBA'97 Medicare home health provisions to
control expenditures and utilization. VNAA and NAHC agree that policy
changes were in order; however, we believe that the steps taken by
BBA'97 inadvertently penalized cost-efficient home health agencies and
patients.
To investigate the effect of BBA'97 on Medicare home health
beneficiaries, Congress sought the input of both the General Accounting
Office (GAO) and the Medicare Payment Advisory Commission (MedPAC). In
their 1999 reports to Congress, both the GAO and MedPAC confirm that
the beneficiaries who are most costly to treat are at risk of losing
access to home health care. While neither report concluded that access
to home health care has become a crisis, it must be noted that the
reports are based, for the most part, on data from the first quarter of
calendar year 1998.
MedPAC found that, ``Nearly 40 percent of agencies surveyed
responded that because of the IPS, they no longer admit all Medicare
patients whom they would have admitted previously, and about 30 percent
of agencies reported discharging certain Medicare patients because of
the IPS.'' Discharged patients were primarily those with chronic care
needs who required a large number of visits and were expensive to
serve.
In its June 1999 report, MedPAC states, ``The case-mix adjusted PPS
[prospective payment system] being developed will not take effect
before October 2000. In the meantime, an exclusion policy for very
expensive patients could be implemented.'' The Commission suggests
allowing agencies to exclude a small portion of their patients from the
aggregate per-beneficiary payment limits to ensure that these
beneficiaries will have access to needed services.
Two alarming outcomes of the IPS were revealed in a recent survey
by VNAA of its members. While VNAs have historically made every attempt
to admit all eligible beneficiaries regardless of condition or ability
to pay, many VNAs are now selectively admitting patients or must
discharge patients earlier than the optimal time for discharge. Many of
the VNAs that responded to the survey made the difficult decision to
discontinue participation in the Medicare program or eliminate rural
service areas.
Recommendations:
VNAA and NAHC understand the need for Congress to make prudent
decisions with respect to changes in the Medicare program. We also
believe that the highest priority must be to target resources to ensure
that beneficiary access is protected, and that the vital home health
infrastructure be stabilized so that it is positioned to respond to
future needs of the disabled and elderly. For this reason, we have put
a high priority on legislation that would:
1. Eliminate the 15% additional cut scheduled for October 1, 2000;
2. Target specific resources through some type of outlier provision to
high-cost, heavy needs patients to ensure that eligible
beneficiaries maintain access to needed home health services;
3. Increase the IPS per-visit cost limit; and
4. Provide relief from financially disabling overpayments.
These proposals are in keeping with the concerns that the GAO and
MedPAC have outlined and that led members of this Subcommittee and
others in the House and Senate to reexamine the home health program
changes. The following information provides more detail and rationale
for each of these recommendations.
Recommendation #1: Eliminate the 15% payment cut, which is scheduled
for October 1, 2000.
Under the BBA97, expenditures under a PPS were to be equal to an
amount that would be reimbursed if the cost limits and per beneficiary
limits were reduced 15%. Even if PPS was not ready to be implemented on
October 1, 1999, the Secretary of Health and Human Services was
required to reduce the cost limits and per beneficiary limits in effect
on September 30, 1999, by 15%. The Omnibus Consolidated and Emergency
Supplemental Appropriations Act (OCESAA) delayed the 15% reduction for
all home health agencies until October 1, 2000.
Congress, HCFA, and home health care providers have looked to PPS
as a possible escape from the draconian changes imposed through IPS.
However, the method for calculating PPS rates requires HCFA to set
payment at levels that will lead to total home health expenditures that
are 15% less than under IPS. This means that the PPS payment rates
would exacerbate the growing access problems of today.
NAHC and VNAA believe that the 15% expenditure cut to Medicare home
health outlays on October 1, 2000, would close down a substantial
percentage of home health agencies that have so far survived the IPS.
HCFA's August 5 regulation on the new home health cost limits predicts
that 93.5% of surviving home health agencies will exceed their FY 2000
per-beneficiary cost limit or per-visit cost limit. In addition, the
average agency will have to repay HCFA 12% of its Medicare costs.
Home health providers--who have already experienced an average 29%
reduction in reimbursement since the BBA'97 (even with the passage of
OCESAA)--are struggling to keep costs under the per-visit and per-
beneficiary cost limits and repay IPS-related overpayments. With an
additional 15% cut, beneficiaries in many areas of the country would
lose access to home health services, and for beneficiaries in many
rural counties, this loss would be the loss of any type of local health
care.
The 15% expenditure cut is not needed to meet BBA'97 savings goals;
CBO estimates that reductions in home care through 2002 will exceed BBA
'97 goals by $32 billion.
Recommendation #2: Target specific resources through some type of
outlier provision to high-cost, heavy needs patients to ensure
that eligible beneficiaries maintain access to needed home
health services.
In addition to the 1999 GAO and MedPAC reports on beneficiary
access, a 1998 study conducted by The Lewin Group entitled
``Implications of the Medicare Home Health Interim Payment System (IPS)
of the 1997 Balanced Budget Act,'' and a 1998 study by the Center for
Health Policy Research of the George Washington University entitled
``Medicare Home Health Services: An Analysis of the Implications of the
Balanced Budget Act of 1997 for Access and Quality,'' both found that
IPS curtails access to covered services for the sickest, most frail
Medicare patients.
The IPS aggregate per-beneficiary limits, based on 199394 data,
clearly do not reflect the increase in severity of most home health
agencies' case-mix populations since that base period. In addition,
technological advances in recent years have vastly expanded the scope
of services that can be provided to Medicare beneficiaries in their
homes. Services such as parenteral and enteral nutrition, chemotherapy
and care of ventilator/trach-dependent patients, which used to be
provided only on an inpatient basis, can now be provided in the home,
thus reducing the need for more costly hospitalization. These services
are costly for the home health agency to provide. These services often
require nursing staff who have had additional training in
administration of drugs and procedures, as well as patient monitoring.
In addition, such services require prolonged visits in the patients'
homes, as well as high standby costs, extensive case management,
transition discharge planning and other activities that add further to
the cost per visit.
Through an outlier payment, additional resources can be targeted to
those providers that care for the high cost patient. An expenditure
limit on outlier payments ensures fiscal soundness.
Recommendation #3: Increase the IPS per-visit cost limit.
BBA'97 reduced the per visit cost limits from 112% of the mean to
105% of the median per visit costs for free-standing agencies. IPS
forces providers to reduce the total number of visits delivered by
patients. However, as the number of visits decreases, costs per visit
go up. Under the 1998 OCESAA, the per visit limits were raised from
105% to 106% of the median. This 1% increase was insufficient to help
HHAs who are operating under cost limits that have been reduced from
14-22% under BBA97. The current cost limits are inadequate to cover the
costs of providing care and to account for the increased administrative
costs of participation in the Medicare program due to HCFA's regulatory
initiatives. Agencies in rural areas and inner cities have been
particularly hard hit by reductions. Their costs tend to exceed
national averages because of longer travel times between visits, higher
wages resulting from the lingering personnel shortages in rural areas,
or security escorts and language translators in the cities.
Recommendation #4: Provide relief from financially disabling.
BBA '97 did not require HCFA to publish information on calculating
the per visit limits until January 1, 1998, even though the limits went
into effect beginning October 1, 1997. Likewise, HCFA was not required
to publish information related to calculation of agencies' annual
aggregate per beneficiary limits until April 1, 1998, despite an
October 1, 1997, start date. More than a year after IPS began, many
agencies had not yet received notice from their fiscal intermediaries
(FIs) providing the visit and per beneficiary limits under which they
were expected to operate.
The BBA '97 home health reductions were so deep and occurred so
quickly that many agencies were not able to adjust to avoid
overpayments. More importantly, overpayments developed because most
agencies continued to provide medically necessary health care within
the scope of the Medicare benefit rather than terminate care to
patients.
These overpayments are not the result of abuse or inefficiency.
Rather, most overpayments have occurred because HHAs continue to serve
high-cost patients within the scope of Medicare coverage and the
payments have already been used to provide legitimate needed care to
eligible beneficiaries. Without some relief from these overpayments, it
can be expected that agency closures, and the attendant access
problems, will accelerate.
Overpayment Relief
HCFA maintains the authority to grant extended repayment plans to
any provider receiving an overpayment from the Medicare program.
However, the current state of determinations regarding eligibility for
extended repayment plans is rife with inconsistency, subjectivity, and
confusion. Recently, HCFA communicated to the Congress and the public
that it had modified the extended repayment plan process to authorize
automatic approval of three-year repayment plans. In fact, home health
agencies have had great difficulty securing even 12-month repayment
plans, let alone the newly authorized three-year repayment schedule.
Further, the claimed interest free nature of the repayment plans has
proven illusory as it has been afforded only to those few home health
agencies where the overpayment has been determined prior to filing of
the annual cost report. We ask the Subcommittee to ensure that HCFA
immediately issue clarifying standards which specifically authorize
automatic three-year repayment plans for all types of IPS-related
overpayments and that repayment plans be made available on an interest
free basis to the extent allowable under current law.
Overpayment Compromises
HCFA has the authority to compromise the collection of Medicare
overpayments. At no time in the Medicare program has there been a more
appropriate circumstance for exercise of this compromise authority.
HCFA has chosen not to process overpayment compromise requests at
this point. The delay in processing these requests virtually guarantees
that the requesting home health agency will be at high risk of closure.
The Subcommittee should strongly recommend that HCFA utilize its
overpayment compromise authority on an expedited basis in order to
resolve the inequities created through the implementation of the IPS.
15-Minute Increment Reporting
BBA97 required that claims for home health services on or after
July 1, 1999, must contain a code that identifies the length of time
for each service visit, measured in 15-minute increments. HCFA issued
instructions to the FIs on February 18, 1999, directing them to
initiate necessary steps to implement this new billing requirement for
all HHAs participating in the Medicare/Medicaid programs (Transmittal
No. A-99). HCFA has allowed for a grace period for compliance until
September 30, 1997.
This new administrative burden imposes a complex time-keeping
requirement for agencies to stop the in-home clock when an interruption
in active treatment occurs. The HCFA transmittal defines the ``time of
service visit'' to begin at the beneficiary's place of residence, when
delivery of services has actively begun. Agencies must count the number
of 15-minute intervals.
The time counted must be actual treatment time. However, in-home
time represents only a portion of the total time invested by an agency
in caring for a patient. Numerous activities required by the Medicare
Home Health Conditions of Participation and needed to ensure effective
patient care are often times performed outside the home, including
communication with physicians and family members, coordination of
services with other home health personnel and community agencies, care
planning, and clinical documentation. In order for home care treatment
time to be meaningfully quantified, visit time must be better defined
and recognized as only part of the resource cost involved in providing
home care services.
Neither Congress nor HCFA has indicated how this information will
be used. Its value is questionable in light of the ongoing move from a
per-visit reimbursement system to prospectively set per-episode
payments that are not tied to number of visits or visit length. In
light of the substantial financial and administrative strains already
being experience by agencies, we urge you to revisit this requirement.
Thank you again, Mr. Chairman, for the opportunity to present our
views. In closing, we urge the Subcommittee to recognize the
seriousness of the situation and pass legislation this year. Last
year's provisions that were included in OCESAA were helpful in that the
15% cut was delayed for one year, the periodic interim payment (PIP)
program was extended until October 1, 2000, and the cost limits
received minor adjustments. However, we are now faced with the
identical situation of having to face a 15% cut in reimbursement and a
discontinuation of PIP one year from now. The cost limits are still
severely low and do not enable the majority of agencies that have
survived the IPS to care for the most chronically-ill patients. You and
the Subcommittee have our gratitude for bringing home health issues to
this level of consideration. We look forward to working closely with
you to resolve these issues.
[GRAPHIC] [TIFF OMITTED] T1694.017
[GRAPHIC] [TIFF OMITTED] T1694.018
Mr. Bilirakis. Thank you very much, Miss Roberts.
Dr. Corlin.
STATEMENT OF RICHARD F. CORLIN
Mr. Corlin. Thank you very much, Mr. Chairman. My name is
Richard Corlin. I am a gastroenterologist in private practice
in Santa Monica, California and I am also speaker of the AMA's
House of Delegates. We appreciate the opportunity to provide
the subcommittee with our views on the needed improvements to
the Medicare sustainable growth rate system, the SGR.
The SGR, enacted under the Balanced Budget Act of 1997, is
a target rate of spending growth for physicians' services. It
is calculated each year on the basis of four factors: medical
inflation, changes in Medicare fee-for-service enrollment, GDP
growth per capita, and changes in spending due to law and
regulation.
There are serious problems with the SGR and MedPAC has
recommended four areas of improvement. We urge Congress to
enact these SGR refinement into law this year.
The four improvements needed are, No. 1, there must be a
requirement to correct HCFA's projection errors and restore the
$3 billion SGR shortfall resulting from these errors. No. 2,
the SGR must be increased to account for physician costs due to
adoption of new technologies.
No. 3, measures must be implemented to curtail volatility
in physician payment rate and avoid steep cuts in the future.
And No. 4, HCFA and MedPAC must be required to provide
information and data on payment updates.
Our testimony today will focus primarily on two of these
four needed SGR refinements: HCFA's projection errors and the
need to increase the target above GDR growth.
HCFA must correct the projection errors in the 1998 and
1999 SGR and should be required to correct projection errors
each year as actual data becomes available. Our view is totally
in accord with MedPAC's recommendation. We recognize that HCFA
has to use estimates to calculate the SGR for the coming year
and as a result, physician payment updates are not based on
actual data but on projected data, which has so far proven to
be erroneous.
In the first 2 years of the SGR, erroneous HCFA projections
have already short-changed physician payments by more than $3
billion. For example, in establishing the 1999 SGR, HCFA
projected that Medicare managed care enrollment would rise by
29 percent in 1999. This error led to a projected drop in fee-
for-service enrollment and a negative 1999 SGR. Data now shows
that managed care enrollment has increased only by 11 percent
and this means that physicians are caring for over 1 million
more patients in the Medicare fee-for-service system than are
accounted for by the SGR statement by HCFA.
The earlier statements, with all due respect, made by HCFA
that they have the ability to erroneously make an estimate but
do not have the legal right to correct their own estimates are
simply beyond the limits of credulity. I might point out, Mr.
Chairman, that the highest amount of shortfall in any State was
to the State of Florida, whose beneficiaries' physicians had a
shortfall of $285 million.
In addition, the SGR needs to be set at GDP plus 2
percentage points, the way it was originally intended to take
into account two main factors responsible for increasing health
care costs: advances in technology and an aging population.
Under the Balanced Budget Act of 1997, the SGR limits
growth in the use of health care services by the elderly and
disabled patients to the rate of growth of the GDP. We know and
CBO forecasts confirm that GDP growth in the next decade will
lag behind growth in patient needs for health care services.
Thus, no matter how cost-effective physicians are in our care
for our beneficiaries, Medicare physician payment rates are
virtually guaranteed to decline unless these corrections are
made.
MedPAC has recommended that the SGR include a factor higher
than GDP to account for, and I quote, ``cost increases due to
improvements in medical capability and advances in scientific
technology.'' We strongly agree with MedPAC.
We also urge Congress to consider a long-term approach to
setting an appropriate growth target. For instance, Congress
could require the Agency for Health Care Policy and Research to
study the impact on utilization of No. 1, advances in
technology, No. 2, aging and other changes in the
characteristics of Medicare enrollees, and three, shifts in
sites of service and a report be made on this study to MedPAC.
Other serious problems with the SGR must also be addressed
and they are explained in our written testimony.
Physicians, regardless of our specialty, are unanimous in
our concern that payment cuts due to flaws in the SGR, on top
of more than a decade of previous cuts, could threaten our
ability to continue to offer our Medicare patients the finest
medical care in the world. Thus the SGR system must be fixed
and it must be fixed this year. Thank you, and I yield the
balance of my time.
[The prepared statement of Richard F. Corlin follows:]
Prepared Statement of Richard F. Corlin on Behalf of the American
Medical Association
The American Medical Association (AMA) appreciates the opportunity
to present to this Subcommittee our views concerning improvements to
the Medicare sustainable growth rate (SGR) system for physicians'
services, and appreciates the Subcommittee's focus on this important
issue. As Congress prepares to consider Balanced Budget Act (BBA)
refinements and Medicare reforms, the AMA urges inclusion of
improvements in Medicare's SGR system in any legislation approved by
the Subcommittee.
Enacted under the BBA, the SGR establishes a target growth rate for
Medicare spending on physician services, then annually adjusts payments
up or down, depending on whether actual spending is below or above the
target. The SGR system was intended to slow the projected rate of
growth in Medicare expenditures for physicians' services.
Physicians are the only group subject to this target, despite the
fact that Medicare spending on physician services has been growing more
slowly than other Medicare benefits. Although the BBA included measures
to slow projected growth in these other benefits, the Congressional
Budget Office continues to forecast much higher average annual growth
rates for other services than for physician services over the next
decade. In contrast to annual growth in outlays of 4.6 percent for
inpatient hospital services, 5.7 percent for skilled nursing
facilities, 6.5 percent for home health, and 14.6 percent for
Medicare+Choice plans, average annual growth in physician services is
projected at only 3.1 percent from 2000-2009.
Physicians were subject to significant and disproportionate
Medicare payment cuts prior to the BBA, yet we have never abandoned our
elderly and disabled patients. From 1991-97, physician payment updates
already had slipped 10 percent below growth in medical practice costs.
In its March 1999 Report to Congress, the Medicare Payment Advisory
Commission (MedPAC) identified serious problems in the SGR system and
recommended significant improvements to it. The AMA and the national
medical specialty societies share MedPAC's concerns and believe that
improving the SGR is a critical component of efforts to ensure that the
85 percent of Medicare beneficiaries who are enrolled in the fee-for-
service program continue to receive the benefits to which they are
entitled.
Specifically, the physician community is concerned that the growth
limits in the current SGR system are so stringent that they will have a
chilling effect on the adoption and diffusion of innovations in medical
practice and new medical technologies. In addition, we are concerned
that the Health Care Financing Administration (HCFA) did not revise the
projections it used in the 1998 SGR when data proved HCFA erroneous.
Further, HCFA stated it will not correct 1999 SGR errors without a
congressional mandate, despite that in the first two years of the SGR,
erroneous HCFA estimates have already shortchanged the target by more
than $3 billion. Finally, we are concerned that the SGR could also
cause future payments to be highly volatile and fall well behind
inflation in practice costs.
medicare physician payments and the balanced budget act
Medicare payments for physicians' services are updated annually by
HCFA. Payment rates are based on a relative value scale system, enacted
under OBRA 89, that reflects the physician work, practice expense and
professional liability insurance costs involved in each service. The
relative value for each service is multiplied by a dollar conversion
factor to establish actual payment amounts. The conversion factor is
required to be updated each calendar year, which involves, in part,
establishing an update adjustment factor (UAF) that is adjusted
annually by the SGR.
MedPAC recommends, and the AMA agrees, that Congress revise the SGR
system as follows--
<bullet> The SGR should include a factor of growth in real gross
domestic product per capita plus an allowance for cost
increases due to improvements in medical capabilities and
advancements in scientific technology,
<bullet> The Secretary should be required to publish an estimate of
conversion factor updates by March 31 of the year before their
implementation;
<bullet> The time lags between SGR measurement periods should be
reduced by allowing calculation of the SGR and update
adjustment factors on a calendar year basis;
<bullet> HCFA should be required to correct the estimates used in the
SGR calculations every year; and
<bullet> The SGR should reflect changes in the composition of Medicare
fee-for-service enrollment.
the sustainable growth rate system
The SGR system was enacted under the BBA and replaces the Medicare
Volume Performance Standard system, which had been the basis for
setting Medicare conversion factor updates since 1992. The SGR sets a
target rate of spending growth based on four factors: changes in
payments for physician services before legislative adjustments
(essentially inflation); changes in Medicare fee-for-service
enrollment; changes in real per capita gross domestic product (GDP);
and an allowance for legislative and regulatory factors affecting
physician expenditures. Growth in real per capita GDP represents the
formula's allowance for growth in the utilization of physician
services.
The target rate of spending growth is calculated each year and is
designed to hold annual growth in utilization of services per
beneficiary to the same level as annual GDP. Physician payment updates
depend on whether utilization growth exceeds or falls short of the
target rate. If utilization growth exceeds GDP, then payment updates
are less than inflation. If utilization is less than GDP, payment
updates are above inflation.
Because of the serious problems with the SGR system, as discussed
below, four improvements must be included in legislation to fix the
SGR:
<bullet> There must be a requirement to correct HCFA's projection
errors and to restore the $3 billion SGR shortfall resulting
from these errors;
<bullet> The SGR must be increased to account for physician costs due
to adoption of new technology;
<bullet> Measures must be implemented to curtail volatility in
physician payment rates and avoid steep cuts in the future; and
<bullet> HCFA and MedPAC must be required to provide information and
data on payment updates.
problems with the sgr system
Of the needed improvements listed above, we wish to focus on two
major problems with the SGR. First, there is a ``projection error''
problem. Specifically, in determining the SGR each year, HCFA must
estimate certain factors that are used to calculate the SGR. In the
first two years of the SGR system, HCFA has seriously miscalculated
these factors, and thus physicians have been shortchanged by several
billion dollars. In addition, these projection errors will continue
each year, and the resulting shortfalls will be compounded.
The second major problem with the SGR system is that it does not
allow growth in physician payments sufficient to account for
physicians' costs due to technological innovations.
In addition, as discussed above, there are other problems with the
SGR system, which we have separately addressed below.
Unlike some other Medicare payment issues, the problems with the
SGR system and their solutions are a matter on which the physician
community is unified. National organizations representing diverse
medical specialties, including surgeons, primary care physicians and
others, as well as organizations representing medical colleges and
group practices, have been working closely together with the AMA to
address these complex issues. On behalf of the entire physician
community, we are asking Congress to take the necessary steps to assure
that we can continue to afford to provide our Medicare patients with
the best medical care available in the world.
The Projection Error Problem
Two of the four factors used to calculate the SGR target each year
are growth in U.S. GDP and fee-for-service enrollment growth. Because
the target must be calculated before the year begins, HCFA can only
speculate as to what GDP growth will be and how many people will enroll
in fee-for-service versus managed care. Recognizing the need for such
speculation, HCFA acknowledged in a 1997 physician rate update
regulatory notice that the actual data for each year, once available,
might reveal errors in its estimates of as much as 1 percent, or $400
million. HCFA also promised that the difference between its projections
and actual data would be corrected in future years.
In the first two years of the SGR, erroneous HCFA estimates have
already shortchanged physician payments by more than $3 billion. These
projection errors have not been corrected and HCFA does not plan to do
so. Specifically, one year after the 1997 notice, HCFA reneged on its
pledge to correct SGR errors and simultaneously issued its most
egregious error, projecting Medicare managed care enrollment would rise
29 percent in 1999, despite the many HMOs abandoning Medicare in 1999.
This error led, in turn, to a projected drop in fee-for-service
enrollment and a negative 1999 SGR. Data now show that managed care
enrollment has increased only 11 percent, a fraction of HCFA's
projection, which means physicians are caring for 1 million more
patients in Medicare fee-for-service than were forecast.
The 1998 and 1999 SGR projection errors are a serious problem. The
SGR is a cumulative (as opposed to an annual) system, and the
cumulative SGR target is like a savings account for physician services.
As discussed, HCFA's errors have left a $3 billion shortfall in this
account, which, if not restored, will either produce unwarranted
payment cuts or deficient payment increases. Although the President's
2000 budget proposes to address the projection errors, we are concerned
that HCFA may correct the errors in a way that will effectively cancel
any benefit to payment rates from using accurate data.
Physicians have faced a decade of payment cuts without ever
abandoning Medicare patients. We have done our part to keep costs
within the limits imposed by the BBA. Now, Congress must do its part by
insisting that payment updates be based on correct SGR estimates.
The SGR Must Allow for Technological Innovations and Other Factors
Impacting Utilization of Health Care Services
MedPAC has also recommended that Congress revise the SGR to include
a factor of growth in real gross domestic product per capita plus an
allowance for cost increases due to improvements in medical
capabilities and advancements in scientific technology.
The system is currently designed to hold annual utilization growth
at or below annual GDP growth. A common method for policymakers to
evaluate trends in national health expenditures is to look at growth in
health spending as a percentage of GDP, but this approach is replete
with problems. There is no true relationship between GDP growth and
health care needs. Forecasts by Congressional Budget Office and the
U.S. Census Bureau indicate that real per capita GDP growth will
average about 1.5 percent per year over the next decade. This is far
below historical rates of Medicare utilization growth. Indeed, at 5.9
percent, average annual per beneficiary growth in utilization of
physicians' services was three to four times higher than GDP growth
from 1981-1996. Thus, if history is any guide, holding utilization
growth to the level of GDP growth virtually guarantees that Medicare
physician payments will decline.
A primary reason for this lack of congruity between GDP and
Medicare utilization is that GDP does not take into account health
status trends nor site-of-service changes. Thus, if there were an
economic downturn with negative GDP growth at the same time that a
serious health threat struck a large proportion of Medicare
beneficiaries, the consequences could be disastrous.
Secondly, GDP does not take into account technological innovations.
The only way for technological innovations in medical care to really
take root and improve standards of care is for physicians to invest in
those technologies and incorporate them into their regular clinical
practice. The invention of a new medical device cannot, in and of
itself, improve health care--physicians must take the time to learn
about the equipment, practice using it, train their staff, integrate it
into their diagnosis and treatment plans and invest significant capital
in it. Yet physician spending is the only sector of Medicare that is
held to as stringent a growth standard as GDP and that faces a real
possibility of payment cuts of as much as 5 percent each year. Keeping
utilization growth at GDP growth will hold total spending growth for
physician services well below that of the total Medicare program and
other service providers.
To address this problem, as recommended by MedPAC, the factor of
growth under the SGR relating to GDP must be adjusted to allow for
innovation in medical technology. We believe to implement adequately
MedPAC's recommendation, the SGR should be set at GDP + 2 percentage
points to take into account technological innovation, as discussed
further below.
In addition, we urge that Congress consider a long-term approach to
setting an appropriate growth target that takes into account site-of-
service changes, as well as health status and other differences between
Medicare's fee-for-service and managed care populations that lead to
differential utilization growth. Thus, we believe that the Agency for
Health Care Policy and Research (AHCPR) should be directed to analyze
and provide a report to MedPAC on one or more methods for accurately
estimating the economic impact on Medicare expenditures for physician
services resulting from improvements in medical capabilities and
advancements in scientific technology, changes in the composition of
enrollment of beneficiaries under the fee-for-service Medicare program
and shifts in usage of sites-of-service.
Technological Innovation
Congress has demonstrated its interest in fostering advances in
medical technology and making these advances available to Medicare
beneficiaries through FDA modernization, increases in the National
Institutes of Health budget, and efforts to improve Medicare's coverage
policy decision process. The benefits of these efforts could be
seriously undermined if physicians face disincentives to invest in new
medical technologies as a result of inadequate expenditure targets.
As first envisioned by the PPRC, the SGR included a 1 to 2
percentage point add-on to GDP for changes in medical technology. Ever-
improving diagnostic tools such as magnetic resonance imaging, new
surgical techniques including laparoscopy and other minimally-invasive
approaches, and new medical treatments have undoubtedly contributed to
growth in utilization of physician services and the well-being of
Medicare beneficiaries. For example, a recent paper published by the
National Academy of Sciences indicated that from 1982-1994 the rates of
chronic disability among the elderly declined 1.5 percent annually.
With GDP projected to grow by 1.5 percent annually, the failure to
allow an additional 1 to 2 percentage points to the SGR for
technological innovation means that the utilization target is only half
the rate that was originally planned. Technological change in medicine
shows no sign of abating, and the SGR should include a technology add-
on to assure Medicare beneficiaries continued access to mainstream,
state-of-the art quality medical care.
Site-of-Service Shifts
Another concern that should be taken into account by the GDP growth
factor is the effect of the shift in care from hospital inpatient
settings to outpatient sites. As MedPAC has pointed out, hospitals have
reduced the cost of inpatient care by reducing lengths-of-stay and
staff and moving more services to outpatient sites, including physician
offices. These declines in inpatient costs, however, are partially
offset by increased costs in physician offices. Thus, an add-on to the
SGR target is needed to allow for this trend.
Beneficiary Characteristics
The SGR should also be adjusted for changes over time in the
characteristics of patients enrolling the fee-for-service program. A
MedPAC analysis has shown that the fee-for-service population is older,
with proportions in the oldest age groups (aged 75 to 84 and those age
85 and over) increasing, while proportions in the younger age group
(aged 65-74) has decreased as a percent of total fee-for-service
enrollment. Older beneficiaries likely require increased health care
services, and in fact MedPAC reported a correlation between the
foregoing change in composition of fee-for-service enrollment and
increased spending on physician services. If those requiring a greater
intensity of service remain in fee-for-service, the SGR utilization
standard should be adjusted accordingly.
Other Problems with the SGR System
Stabilizing Payment Updates under the SGR System
The AMA strongly agrees with MedPAC's further recommendation that
Congress should stabilize the SGR system by calculating the SGR and the
update adjustment factor on a calendar year basis.
Instability in annual payment updates to physicians is another
serious problem under the SGR system, as has been acknowledged by HCFA.
Projections by the AMA, MedPAC and HCFA show the SGR formula producing
alternating periods of maximum and minimum payment updates, from
inflation plus 3 percent to inflation minus 7 percent. Assuming a
constant inflation rate, these alternating periods could produce
payment decreases of 5 percent or more for several consecutive years,
followed by increases of similar magnitude for several years, only to
shift back again. These projections are based on constant rates of
inflation (2 percent), enrollment changes, GDP growth and utilization
growth. There is a serious problem when constant, stable rates of
change in the factors driving the targets lead to extreme volatility in
payments that are entirely formula-driven.
A primary reason for this instability is the fact that there is a
time lag in measurement periods for the SGR. Specifically, while
physician payment updates are established on a calendar year basis, SGR
targets are established on a federal fiscal year basis (October 1
through September 30) and cumulative spending (used to calculate the
SGR) is established on an April 1 through March 31 basis. These time
periods must all be consistent and calculated on a calendar year basis
to attempt to restore some modicum of stability to the SGR system.
Simulations by the AMA and MedPAC have also shown, however, that
the change to a calendar year system will not, by itself, solve the
instability problem. Additional steps would be needed. The wide range
of updates that are possible under the current system, from inflation +
3 percent to ``7 percent, is one reason for the instability. The lower
limit is also unacceptably low, and, assuming an MEI of 2 percent,
represents an actual 5 percent cut in the conversion factor in a single
year. These levels of payment cuts would be highly disruptive to the
market, and likely would have the ``domino effect'' of impacting the
entire industry, not simply Medicare fee-for-service. Many managed care
plans, including Medicare+Choice and state Medicaid plans, tie their
physician payment updates to Medicare's rates. Thus, payment limits
under current law must be modified to assist in stabilizing the SGR
system. We recommend that the current limits on physician payment
updates (MEI +3 percent to MEI -7 percent) be replaced with new,
narrower limits set at MEI +2 percent and MEI -2 percent.
Finally, use of the GDP itself also contributes to the instability
of the payment updates since GDP growth fluctuates from year to year.
Thus, we recommend measuring GDP growth on the basis of a rolling 5-
year average.
Payment Preview Reports
Finally, MedPAC has also recommended that Congress should require
the Secretary of the Department of Health and Human Services to publish
an estimate of conversion factor updates prior to the year of
implementation. We agree.
When the SGR system was enacted to replace the previous Medicare
Volume Performance Standards, the requirements for annual payment
review reports from HCFA and the PPRC were eliminated along with the
old system. Without these reports, it is impossible to predict what the
payment update is likely to be in the coming year, and it is impossible
for Congress to anticipate and respond to any potential problems that
may ensue from an inappropriate update or a severe projection error.
Changes in Medicare physician payment levels have consequences for
access to and utilization of services, as well as physician practice
management. These consequences are of sufficient importance that the
system for determining Medicare fee-for-service payment levels should
not be left unattended on a kind of ``cruise control'' status, with no
``brake'' mechanism available to avoid a collision.
The AMA, therefore, urges that the payment preview reports be
reinstated. Specifically, we believe that HCFA should be required to
provide to MedPAC, Congress and organizations representing physicians
quarterly physician expenditure data and an estimate each spring of the
next year's payment update. MedPAC could then review and analyze the
expenditure data and update preview, and make recommendations to
Congress, as appropriate.
conclusion
Enactment of the SGR system improvements recommended by MedPAC are
critical to the continued ability of our nation's physicians to be able
to offer our Medicare patients the benefits of the finest medical care
available in the world. If these improvements are not put in place, the
SGR system could lead to severe payment cuts in the Medicare physician
fee schedule and payments for services that do not accurately reflect
their costs. The cuts resulting from both the statutory design of the
SGR system and administration of the system by HCFA would be in
addition to more than a decade of cuts in physician payments. For
example, in the six years from 1991-1997, overall Medicare physician
payment levels fell 10 percent behind the rate of growth in medical
practice costs. Many individual services and procedures faced even
deeper cuts.
Recent survey data from the AMA's Socioeconomic Monitoring System
indicates that these payment changes are having very significant
effects on the practice of medicine. Of 2,450 randomly selected
physicians that were surveyed from April-August 1998, 35 percent
reported they are not renewing or updating equipment used in their
office, are postponing or canceling purchasing equipment for promising
new procedures and techniques, or are performing many procedures in
hospitals that were formerly performed in the office. Three quarters of
these physicians reported that Medicare payment cuts were an important
factor in their decisions to defer or cancel these investments in
capital.
With these kinds of changes already taking place in response to
previous payment changes, we have grave concerns about the effects of
the further reductions that could take place due to the SGR or
incorrect practice expense values. In order for the medical innovations
that will come from Congress' enhanced funding of biomedical research,
FDA modernization, and better Medicare coverage policies to translate
into ever-improving standards of medical care, physicians must be able
to adopt these innovations into their practices. It is already clear
that Medicare payment cuts are threatening continued technological
advancement in medicine, and this is a threat that affects all of us,
not just Medicare beneficiaries. Clearly, reversal of the trend to move
services away from inpatient sites into ambulatory settings could also
have severe consequences for health care costs, as well as patient
care.
We appreciate the efforts of the members of the Subcommittee to
explore the problems presented by the SGR system, as well as the
opportunity to discuss our views on this extraordinarily important
matter. We urge this Subcommittee and Congress to consider MedPAC's
recommendations and the recommendations we have discussed today, and
are prepared to engage fully in detailed discussions with the
Subcommittee and Congress as we work to achieve a workable and
reasonable solution.
Mr. Bilirakis. Dr. Corlin has testified before.
Mr. Holveck.
STATEMENT OF DAVID P. HOLVECK
Mr. Holveck. Thank you, Mr. Chairman and committee members.
I will forego a written statement and really take the
opportunity, and I value this opportunity on behalf of the Bio
Organization, to give a very specific and, I think, pointed
comment relative to the proposed changes in the Balanced Budget
Act, specifically on ambulatory payment classification.
This particular classification, we believe, is a very
simple solution to a very complex problem. I think what we all
have realized in the development of new technologies in health
care, and specifically biotechnology, is that these health care
solutions are complex. I think we know from just the time it
take to develop them, how we study them, the patient
populations that we review, we do not do it with 10; we do it
with 10,000. I think that should demonstrate the complexity of
the human system, the heterogeneity of the system.
For us to propose a policy for ambulatory infusion of
therapeutics in a way that really classifies a single payment
system for all is akin to giving everyone a size 5 narrow shoe.
It does not work. I think you have to reflect on the complexity
that we deal with and I think we have to move in a fashion that
allows proper reimbursement for infused drugs and not penalize,
most importantly, the patients, who are really the
beneficiaries of this advanced technology.
Let me give you an example of how a system could evolve. We
all have heard today that there are sensitivities to cancer
treatment and the proposed changes do recognize various
classifications but I still think they are not divided enough
to give the full complementary of the various treatments to
various cancers. But outside of that, there is no recognition.
There is a flat fee, at least being proposed.
Centocor is an example of a company that last year received
an approval for a drug for Crohn's disease, a devastating
disease that is chronic and generally lasts for life. It is a
drug that was the first approved under the Orphan Law and the
first one approved in 30 years. The usefulness of this drug
compared to the patient stay in the hospital, which generally
averaged 8 days a year, $35,000 a year--surgery could average
$47,000 a year--can be augmented by a $1,900 infusion.
The flat rate that is being proposed is $99.24. I doubt
seriously that the hospitals are going to eat that charge and
what is going to happen is the patients are not going to get
the treatment. Alternatively, they could turn to doctors or
physicians' offices but they are not facilitated to implement
that change.
So I really believe that we are at a point where we have to
recognize the complexity. I think we have to realize that you
and Congress have primed the pump with FDAMA, with orphaned
drug incentives, with NIH funding that has created a high-value
technology that needs to now get into the hands of the public
and the needed patient.
I guess I would just close by leaving you a little imagery.
I think we all see on the 6 news where we find that this Nation
is quick to respond to the needs of many nations with national
disasters or political upheaval that really disrupt the public
quality of life. We load the transport planes. We get the
supplies and the needed elements on the tarmac, only to see, in
frustration, that we cannot move them off the tarmac because of
either political instability or infrastructure.
I think we sit here today and we have primed the pump, we
have the needed technology on the tarmac. I challenge you to
give us policies that will get it into the hands of the public.
Thank you.
[The prepared statement of David P. Holveck follows:]
Prepared Statement of David P. Holveck on Behalf of the Biotechnology
Industry Organization
Mr. Chairman, Members of the Committee, thank you for the
opportunity to testify today on the need to correct unanticipated
consequences of the Balanced Budget Act of 1997.
I am David Holveck, Chief Executive Officer of Centocor, a twenty-
year old biopharmaceutical company headquartered in Malvern,
Pennsylvania. Centocor is a leading biopharmaceutical company that
creates, acquires and markets cost-effective therapies that yield long-
term benefits for patients and the healthcare community. Developed
through monoclonal antibody technology, Centocor's mission is to help
physicians deliver innovative treatments to improve human health and
restore patients' quality of life.
This morning I am testifying on behalf of the Biotechnology
Industry Organization (BIO), representing over 830 companies,
universities, research institutions, state biotechnology centers and
affiliates in 46 states.
BIO asked me to testify to highlight a Balanced Budget Act of 1997
issue that has not received much attention. I am here to talk about the
devastating impact HCFA's proposed Ambulatory Payment Classification
(APC) system would likely have on patients who benefit from
biotechnology products and the research that makes new therapies and
cures possible. HCFA has not issued the final APC rule to date, so the
full impact has not yet been felt. This issue is a sleeping giant.
To illustrate the biotech industry's concern, I will use my
company's experience with patients suffering from Crohn's disease, an
orphan disease. It is only one example of dozens our industry could
present. The APC system, as proposed, will negatively affect patients
suffering with cancer and its related side-effects, end-stage renal
disease, hemophilia, and a host of orphan diseases.
I would like you to consider two points as you discuss the
unanticipated outcomes of the BBA and select which problems merit
legislative correction.
1) I am sure Congress' intent was not to establish a hospital
outpatient prospective payment system that compromises quality of care
and biomedical research, or that limits access to appropriate biologics
and pharmaceutical products.
2) If all drugs and biologics are bundled into the proposed APC
system, it will:
<bullet> decrease patient access to current important and often life-
saving therapies.
<bullet> create incentives for hospitals to use biotechnology products
and drugs in a less efficient manner.
<bullet> encourage the use of the cheapest drug or biologic rather than
the most effective one.
<bullet> create a potential shift of patient treatment to less
intensive settings, such as physician offices, even when it is
not clinically appropriate.
<bullet> significantly decrease incentives to develop new biotechnology
products targeted for indications that affect elderly
populations.
Congress must get involved to ensure that a HCFA rule based on
flawed data and unsound policy is not finalized. It is better to
correct this problem before the damage is done.
i. brief background
The Balanced Budget Act of 1997 (BBA) requires HCFA to establish a
prospective payment system (PPS) to reimburse for care provided to
Medicare beneficiaries in hospital outpatient departments. In addition,
the BBA grants the Secretary of Health and Human Services authority to
exempt certain products and services from the outpatient prospective
payment system (PPS).
Since the passage of BBA, HCFA, in consultation with a private
contractor, created a hospital outpatient department bundling system
and called each bundle an Ambulatory Payment Classification (APC). The
proposed rule to establish 346 of these APCs was published in the
Federal Register on September 8, 1998. Due to errors in data used to
create some APCs and other delays, the comment period was extended
numerous times from its initial end date of July 30, 1999. HCFA
received thousands of comments to the proposed rule. As of today's
hearing, the agency has not published a final rule, but all indications
are that HCFA is unlikely to revise the proposed system in a
significant enough way that our concerns would be addressed. Although I
hope the agency proves us wrong, Congress must involve itself now to
ensure that this proposed bundling system does not go into effect and
harm the quality of patient care.
ii. the proposed rule's detrimental effects to patient care: treatment
of crohn's disease as one example
In 1998, Centocor began marketing Remicade, a breakthrough orphan
drug product for Crohn's disease, a chronic inflammatory bowel disease.
The symptoms include diarrhea, severe abdominal pain, fever, chills,
nausea and fistulae (painful draining of abnormal passages between the
bowel and surrounding skin), this is a painful, debilitating disease
that until the introduction of Remicade could not be adequately treated
without drugs that produce serious side-effects. Remicade was the first
treatment specifically designed for Crohn's disease in more than 30
years.
A typical course of therapy for Remicade involves a two-hour
infusion administered by a physician once every eight weeks. The
infusion time and the potential complications that often come with the
disease make the hospital outpatient department a very attractive
setting for service. In fact, since its launch last year, 80 percent of
the patients receiving Remicade have been treated in the hospital
outpatient setting.
A typical course of Remicade therapy costs $1,900, yet the APC
reimbursement as proposed would equal only $99.24. To a hospital
administrator responsible for keeping a hospital solvent, this APC
underpayment means a loss of $1,726.00 for the treatment of one patient
per infusion. This loss does not even factor in staff and site of
service costs. Since Remicade is infused once every eight weeks, caring
for one Crohn's patient would cost the hospital more than $11,705.00
annually.
Since there is great sensitivity toward drug pricing among members
of Congress, let me emphasize that Remicade is a cost-effective product
for those with Crohn's disease. Each year, approximately one in five
patients with Crohn's disease requires hospitalization. In fiscal year
1995, the mean hospital charge for these patients was $35,378. The mean
length of stay in the hospital was 8.7 days. Of the patients requiring
surgery, approximately 57 percent had a mean charge of $46,354. Common
surgical procedures for patients with Crohn's disease include resection
of the bowel, draining of abscesses and ileostomies. The use of
Remicade can lower the number of hospitalizations as well as the need
for expensive surgeries. Using the product also could capture savings
by eliminating substantial health-care costs often associated with the
long-term side effects of previous therapies used to treat Crohn's
disease. There is no accurate way to put a number on improving quality
of life; however, it is an important factor to consider. A $1,900 drug
that must be taken every eight weeks may seem expensive, but, in the
context of providing patients' treatments to avoid future health care
costs and live a more normal life, this is a cost-effective
intervention.
iii. the impact the apc system will have on one orphan drug product
explains the concerns raised by bio on behalf of the biotech industry.
While the above product is only one example, the problems raised
apply broadly. Here are our industry's concerns with the APCs as they
relate to drugs and biologics.
A. As proposed by HCFA, the APC system could penalize hospitals for
providing the most clinically appropriate therapies.
As demonstrated in the Remicade example, the proposed APC system
will threaten patients' access to important and often life-saving
therapies because it does not allow adequate payment for most
biotechnology products and drugs. For a variety of technical reasons
involving the inadequacy of the database and its analysis, many
biopharmaceuticals were not even included in the APC calculations. For
example, HCFA excluded all products that received codes after 1996. A
perfect example of this is Remicade. FDA did not approve the drug until
1998, so the cost of Remicade was not factored into any APC. The
inherent bias used in selecting claims for analysis, along with the
absence of detailed coding data for drugs and biologics means the
proposed APC system has no real basis in actual costs or patterns of
care for biotechnology products or drugs.
Medicare beneficiaries' access to biotechnology products and drugs
should not be determined solely on the cost of a product. Nevertheless,
the APC system creates incentives for hospital outpatient departments
to make decisions primarily on this basis, potentially, denying
Medicare beneficiaries access to high-cost, high-value products.
Clearly, this was not the intent of Congress when it mandated a
prospective payment system for hospital outpatient department services.
B. Clinicians may not be able to determine the most appropriate setting
of care for a given patient without being adversely influenced
by inappropriate payment
The APCs as currently described will force a physician to prescribe
an inexpensive drug in the hospital outpatient setting or look for an
alternative site to administer the optimal therapy. This is because
hospitals cannot sustain long-term underpayment and remain solvent. The
APC system will create an incentive to shift care to other, potentially
less-appropriate settings.
Many patients may lose the option to receive their care in hospital
outpatient departments. Physicians will be obligated to treat these
patients at alternative sites, whether or not these alternatives are
the best settings for the procedure involved. In the case of Remicade,
theoretically, it could be clinically appropriate to administer the
drug in a physician's office where reimbursement rates would cover the
cost of the drug. However, as a practical matter, this option currently
does not exist. Gastroenterologists are the specialists who typically
treat patients with Crohn's disease. Because few other infused
therapies exist for gastroenterological indications, these physicians
traditionally do not have the facilities, equipment, and skilled
personnel to administer prolonged infusions in the office. In addition,
for some patients--typically those with serious complications and co-
morbidities or with a history of infusion reactions--it never may be
clinically appropriate to receive a prolonged infusion in a physician's
office.
C. Many are concerned that the proposed APC system would
disproportionately affect access to care in rural areas where
hospital outpatient departments are the exclusive providers of
technology-based services
Because of the acquisition, storage and processing costs, only
providers with substantial operating budgets can supply many
biotechnology products and drugs. It simply is not realistic to expect
physician offices in rural regions to provide the full range of
biotechnology products and drugs currently available in hospital
outpatient departments. Beneficiaries who lose access to appropriate
outpatient care and subsequently go without therapy may suffer
complications or a worsening of the disease that could otherwise have
been avoided.
iv. the proposed apc system may have a negative impact on development
of critical new technologies and therapies
As a CEO of a company researching and developing new technologies,
I am very concerned with how this new APC system would directly impede
the research, development and adoption of new technologies.
Under the proposed rule, a new technology's APC assignment will not
reflect its true costs for several years after it is assigned a unique
HCFA Common Procedure Coding System (HCPCS) billing code.
First, the technology will be billed with a miscellaneous HCPCS
code and will be assigned to the lowest paying APC available.
Then, once a unique HCPCS code is assigned, HCFA proposes to
determine which APC includes services that are most similar clinically
and with respect to resources to the new technology.
If several APCs are identified, HCFA will assign the new technology
to the lowest paying option without adjusting the relative weight or
payment amount of the recipient APC.
Finally, only after an additional period of at least two years will
the technology be eligible for assignment to the most appropriately
paying APC <SUP>1</SUP>. This will make it very difficult for hospitals
to offer their patients early access to the breakthrough products
because they won't be reimbursed adequately. This will lower the
standard of care for Medicare beneficiaries.
---------------------------------------------------------------------------
\1\ The preamble to the proposed rule states that HCFA will not
create an APC for an entirely new code, but will assign it for at least
two years to an existing group while accumulating data on its costs
relative to the other codes in the APC (63 FR 47579).
---------------------------------------------------------------------------
The proposed recalibration approach for updating APC weights may
not allow hospitals to cover the cost of new technologies for several
years. The inequity of purposely assigning new technologies to the
lowest paying APCs is compounded by the fact that Medicare proposes to
update APC assignments only after two or more years of data collection
and only to recalibrate the payment levels of each APC infrequently.
The result of HCFA's proposed updating methodology is that an APC that
includes a new technology may not be assigned an appropriate weight for
more than three years. This delay could have a chilling effect on the
evolution of medical care.
The proposed APC system also would create substantial disincentives
to private sector development of such products. The development of
life-saving therapies depends on the ability of biotechnology companies
to achieve a rate of return on their investment of resources
commensurate with the risk. Otherwise investors, who supply most of the
capital for research and development, will not support biotechnology
companies. It takes an average of eight years and more than $350
million to bring a new drug to market. New biotechnology products and
drugs often are breakthrough technologies that offer treatment to
patients who have few options. HCFA has not taken this into
consideration in developing its APC system. As a result, the proposed
APC system is likely to severely underpay for biotech products, thereby
significantly decreasing the incentives to develop new medicines
targeted for indications that affect the elderly population. This
result runs counter to Congress' many other efforts to speed the
development of innovative products for the seriously ill, e.g. orphan
tax credits, doubling of the NIH budget, and the Food and Drug
Administration Modernization Act (FDAMA).
v. categories of therapies at particular risk of underpayment and
under-utilization due to apcs
In an effort to identify which products would be most harmed by the
APC system, BIO, in conjunction with the Pharmaceutical Research and
Manufacturers Association (PhRMA) identified seven categories in
particular jeopardy. Both trade groups urged HCFA to carve out the
following:
1. ``New'' Drugs and Biological Products. New technologies are awaiting
proper code assignments. As explained above, to secure an
appropriate APC for a new technology could take over two and a
half years.
2. Orphan drugs. Statistically there is no way to account infrequently
used but higher-cost products in a prospective payment system.
3. Cancer treatments. The proposed rule specifies four different APCs
that include 69 different chemotherapy related codes. The APCs
do not account for the variances in dosing that occur in actual
chemotherapy administration.
4. Outlier drugs. Drugs and biologics are at high-risk of not being
provided to beneficiaries who need them most. HCFA acknowledges
in the preamble to its proposed rule that certain drug products
may not fall into any of the categories listed and may result
in disproportionate costs to hospitals.
5. Radiopharmaceutical drugs. Significant flaws in the data have
resulted in inappropriate low payment for procedures using
these products.
6. Plasma based therapies. BIO estimates there at 62 different types of
plasma based products or recombinantly produced substitutes in
the United States. With few exceptions, the APC system provides
no extra payment for these products.
7. Drugs for end-stage renal disease. Dialysis patients rely on a vast
array of pharmaceutical and biological products. Since some
products will not be covered under the composite rate, we
believe their access will be curtailed under the proposed APCs.
A more detailed rationale for special treatment of each of these
classifications is addressed in the attached BIO comments to HCFA's
proposed rule.
conclusion:
During the last several months we have all focused intently on the
need for seniors to secure better access to prescription drugs. I find
it ironic that the administration is proposing a new Medicare drug
benefit while also, in effect, proposing to limit access to drugs that
are already reimbursed under Medicare.
Congress did not intend to decrease patient access to life-saving
therapies, create incentives for hospitals to use biotech products in a
less efficient manner, shift patient treatments to inappropriate
settings or decrease incentives to develop new biotech products
targeted for indications that affect elderly populations.
I urge you to address this important issue on behalf of the biotech
industry and its patients.
Thank you for the invitation to testify. I would be happy to answer
any questions.
______
Health Care Financing Administration
Department of Health and Human Services
Attention: HCFA-1005--P
P.O. Box 26688
Baltimore, MD 21207-0488
Dear Sir or Madam: Thank you for the opportunity to comment on the
Prospective Payment System for Hospital Outpatient Services Proposed
Rule published in the Federal Register on September 8, 1998 (63 FR
47552). The Biotechnology Industry Organization (BIO) is a industry
organization representing 850 member companies that research and
manufacture a diverse range of biotechnology-derived products,
including drugs, vaccines, blood derivatives and related products,
tissue-based products, and in vitro diagnostic products (hereinafter
``biotechnology products and drugs'').
After careful review and analysis of the proposed rule and in
response to the Health Care Financing Administration's (HCFA's) request
for comments, BIO is seriously concerned that the proposed Ambulatory
Payment Classification (APC) system would disrupt access to quality
health care and create severe underpayment for a broad range of
biotechnology drugs and products. BIO believes that sufficient problems
exist with respect to the methodologies used to compute APC payments as
well as the concept of bundling drugs and biologics that we ask the
HCFA administrator to urge the secretary of HHS to assert her authority
and carve out several categories of drugs and biologics from the APCs.
BIO believes that the result of bundling drugs and biologics into
APCs will decrease Medicare patients' access to quality health care.
The current proposed bundling of biotechnology products and drugs into
the APC groupings would create a grossly inadequate payment for these
products, which is likely to result in:
<bullet> decreased patient access to important and often life-saving
therapies
<bullet> incentives for hospitals to use biotechnology products and
drugs in a less efficient manner
<bullet> a potential shift of patient treatment to less intensive
settings, such as physician offices, even when it is not
clinically appropriate and
<bullet> significantly decreased incentives to develop new
biotechnology products targeted for indications that affect
elderly populations.
We believe the rule's potential negative effects provide ample
reason to question the proposed system's treatment of biotechnology
products and drugs. When considered together, the threat of such
disruptive and negative effects on health care makes it imperative that
HCFA not bundle biotechnology products and drugs into the APCs.
In these comments we ask the HCFA Administrator to urge the HHS
secretary to exercise her exemption authority with regard to
biotechnology products and drugs. The Balanced Budget Act (BBA) of 1997
requires HCFA to establish groups of covered services that are
comparable clinically and with respect to the use of
resources.<SUP>1</SUP> In addition, the BBA grants the secretary
authority to exempt certain products or services from the outpatient
PPS.<SUP>2</SUP>
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\1\ Social Security Act (SSA), as amended Sec. 1833(t)(2)(B).
\2\ The BBA authorizes the secretary to designate the hospital
outpatient services to be covered by the outpatient PPS, see SSA, as
amended Sec. 1833(t)(1)(B)(i).
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As detailed below, it is readily apparent from HCFA's methodology
that the costs of biotechnology products and drugs were not carefully
considered and in some cases were specifically ignored, in the
formulation of the APC system. In addition, we believe the underpayment
for biotechnology products will lead to frequent substitution of less
clinically appropriate therapies. Accordingly, we propose that HCFA
exercise its discretion under the BBA to exempt certain classes of
biotechnology products and drugs.
In these comments BIO will explain: 1) our members' concerns with
the flawed data collection process and data categories; 2) possible
carve-outs that will mitigate the harm to patients who depend on the
products they receive in the hospital outpatient setting; and 3) other
issues of concern to the industry.
Seven categories of possible carve-outs and examples are detailed
in these comments: 1) ``New'' technologies; 2) ``Orphan'' drug
products; 3) Chemotherapy agents and related supportive care drugs; 4)
Biologics and drugs at high risk of not being provided to beneficiaries
who need them; 5) Radiopharmaceuticals and other drugs required for
nuclear medicine procedures; 6) Blood-derived products; 7) Drug
products not covered by the ESRD composite rate.
If there are any questions, BIO and its member companies will be
pleased to work with HCFA to find a solution. If there are any
questions about these comments, please call Nancy Bradish Myers at
(202) 857-0244. Again, we appreciate the opportunity to comment on the
proposed rule.
Nancy Bradish Myers
Healthcare Policy Counsel
major concerns wih the proposed rule:
Given the serious underpayment that will occur under the proposed
APCs, BIO does not believe that an adequate remedy exists to cover
biotechnology drugs and vaccines within the APC framework.
In May of 1998, we shared our early concerns on the prospective
payment system (PPS) for hospital outpatient care with HCFA
Administrator Nancy Ann Min De Parle. Although we were never granted a
meeting with the administrator, our letter stressed our concerns that
including biotechnology products in such a system would be
inappropriate and could jeopardize the quality of care received by
Medicare beneficiaries. Specifically, we were concerned that an
outpatient PPS would lead to drastically reduced hospital payments,
which would seriously inhibit the ability of hospitals to continue to
provide high quality treatment and patient access to necessary health-
care services.
We believe that these same issues are even more problematic in the
proposed APC rule than we had anticipated in our earlier
correspondence. Following the September 8 publication of the proposed
rule, we analyzed the new PPS and held detailed discussions with our
member companies on its potential impact. Many of our members conducted
detailed analyses of payment levels under the proposed APC system, and
found them to be woefully inadequate to cover the basic costs of care.
In some cases the payment for services is inadequate even before the
costs of biotechnology products are considered.
the proposed rule's detrimental effects to health care
As proposed by HCFA, the APC system could penalize hospitals for
providing the most clinically appropriate therapies.
The proposed APC system will threaten patients' access to important
and often life-saving therapies because it does not allow adequate
payment for most biotechnology products and drugs and their related
services. Because HCFA's methodology in deriving APC payment weights
excluded all products that received codes after 1996 as well as
products judged to be extremely costly, APC payments do not accurately
reflect the actualized costs of care. This underpayment--or lack of
payment altogether--for biotechnology products and drugs would inhibit
hospitals' ability to provide care that relies on these technologies.
This would be the case particularly in hospitals that have case mixes
requiring heavier utilization of biotechnology products and drugs.
Medicare beneficiaries' access to biotechnology products and drugs
should not be determined solely on cost. Nevertheless, the APC system
may force outpatient departments to make decisions based primarily on
economics and, consequently, deny Medicare beneficiaries access to
medically necessary and appropriate care. Clearly, this was not the
intent of Congress when it mandated a prospective payment system for
hospital outpatient department services.<SUP>3</SUP>
---------------------------------------------------------------------------
\3\ The BBA instructs HCFA to create a prospective payment system
that ensures payment groupings for services that are ``comparable
clinically and with respect to the use of resources.'' See Social
Security Act, As Amended, Sec. 1833(t)(2)(E).
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Clinicians must be able to determine the most appropriate setting
of care for a given patient without being adversely influenced by
inappropriate payment.
By not providing adequate payment to hospitals, the APC system will
create an incentive to shift care to inappropriate settings.
Since the proposed APC system would severely underpay hospital
outpatient departments for a broad range of services that include
biotechnology products and drugs, it is reasonable to expect that many
patients will lose the option to receive their care in hospital
outpatient departments. Physicians will be obligated to treat these
patients in alternative sites, whether or not these alternatives are
the best setting of care for the procedure involved.
This shift in setting is a problem because hospital outpatient
departments can provide a full range of outpatient services, including
invasive procedures and expensive specialized care. At the same time,
hospital outpatient departments offer a ``safety net'' through their
immediate access to a broad range of clinical specialists and to
inpatient services, if necessary. Because physician offices and other
settings do not offer this safety net, many services cannot be safely
shifted outside of the hospital outpatient setting.
To treat all patients with the most effective, appropriate care,
physicians need the flexibility to determine the best setting in which
to treat each patient they serve. Many physician offices are not
adequately staffed or equipped to provide prolonged infusions, do not
have adequate storage and processing capabilities for biotechnology
products, and lack the financial resources to maintain expensive
capital equipment and other materials that are used concurrently with
these products.
If APCs prompt a shift in care settings, patients in rural areas
may lose access to care completely.
BIO is also concerned that the proposed APC system would
disproportionately impact access to care in regions (particularly rural
areas) where hospital outpatient departments are the exclusive
providers of technology-based services. Because of the acquisition
costs, storage and processing, many biotechnology products and drugs
can only be supplied by providers that have substantial operating
budgets. It simply is not realistic to expect that physician offices in
these regions will be able to provide the full range of biotechnology
products and drugs currently available in hospital outpatient
departments. Accordingly, rural hospital outpatient departments either
will have to discontinue stocking essential products and refer patients
to larger urban hospitals or sustain substantial losses to provide
immediate access to care.
Because the proposed APC system could haphazardly shift patient
care to inappropriate settings, it may actually increase costs for
certain types of patients.
The shifting of patients from hospital outpatient care departments
to other health-care settings because economic constraints may lead to
increased Medicare expenditures overall. Beneficiaries who lose access
to appropriate outpatient care and subsequently go without therapy may
suffer from complications that could otherwise have been avoided.
Similarly, beneficiaries forced to receive care in inappropriate
settings, such as a physician's office, or who do not receive the
optimal therapy because of choice of setting also may suffer from
preventable complications. In other cases, beneficiaries may be
hospitalized simply because they cannot receive the therapy they need
on an outpatient basis--which will increase Medicare costs.
Clearly, the shifting of patient care appears reasonably likely
because of the underpayment of APC groups in the hospital outpatient
setting. This will reduce quality of care, endanger patient outcomes
and, ultimately, lead to greater expense for Medicare.
the proposed apc system's impact on development of critical therapies
The APC system would directly impede the development and adoption
of new technologies.
Under the proposed rule, a new technology's APC assignment will not
reflect its costs for several years after it is assigned a unique HCFA
Common Procedure Coding System (HCPCS) billing code. First, the
technology will be billed with a miscellaneous HCPCS code and will be
assigned to the lowest paying APC available. Once a unique HCPCS code
is assigned, HCFA proposes to determine which APC includes services
that are most similar clinically and with respect to resources to the
new technology. If several APCs are identified, HCFA will assign the
new technology to the lowest paying option without adjusting the
relative weight or payment amount of the recipient APC. Only after an
additional period of at least two years will the technology be eligible
for assignment to the most appropriately paying APC.<SUP>4</SUP>
Therefore hospitals will not be able to offer their patients access to
the breakthrough products of the day because of the financial risk to
the hospital. This will lower the standard of care for Medicare
beneficiaries.
---------------------------------------------------------------------------
\4\ The preamble to the proposed rule states that HCFA will not
create an APC for an entirely new code, but will assign it for at least
two years to an existing group while accumulating data on its costs
relative to the other codes in the APC (63 FR 47579).
---------------------------------------------------------------------------
The proposed recalibration approach for updating APC weights may
not allow hospitals to cover the cost of new technologies for several
years.
The inequity of purposely assigning new technologies to the lowest
paying APCs is compounded by the fact that Medicare proposes to update
APC assignments only after two or more years of data collection and to
recalibrate the payment levels of each APC infrequently. The result of
HCFA's proposed updating methodology is that an APC that includes a new
technology may not be assigned an appropriate weight for more than
three years. This delay could have a chilling effect on the evolution
of medical care and therefore on the quality of care available to
beneficiaries.
Given that new technologies often drive rapid changes in medical
practice, as has happened in the treatment of AIDS/HIV and
cardiovascular medicine, BIO strongly believes that the APC system
should not include drugs and biologics. In the unfortunate event that
the APC system continues to house biologics and drugs, it must be
recalibrated to establish a realistic baseline payment for each APC
case that reflects all inputs including each drug and biotherapeutic
and then recalibrated at least annually to reflect the current
advancements in patient care.
In addition to adversely affecting beneficiary care, the proposed
recalibration methodology would harm small, innovative biotechnology
companies because it would keep them from successful product
commercialization.
The development of life-saving therapies depends on the ability of
biotechnology companies to achieve a return on their investment of
resources. At present, we estimate that it takes our member firms an
average of eight years and over $350 million to bring a novel
biological product to market. Accordingly, it is critical that a new
technology be assigned to a clinical and resource-appropriate APC
immediately upon its market availability, and that the assignment not
act as a disincentive to the product's use. To institute a system that
does otherwise would threaten Medicare beneficiaries' access to
medically appropriate care.
The proposed APC system would create substantial disincentives to
private sector development of such products.
New biotechnology products and drugs often are breakthrough
technologies that offer treatment to patients who have few other
options. However, by their very nature, many are costly to develop and
produce. HCFA has not taken this into consideration when developing its
APC system. Instead, it insists on bundling biotechnology products and
drugs into APC payments, thereby not allowing hospitals to adequately
cover their costs. Not only will this hinder clinical adoption of
biotechnology products and drugs, but it also will affect the
advancement of these therapies into the standard clinical practice of
medicine. As a result, the currently proposed APC system could
significantly decrease the incentives to develop new biotechnology
products and drugs targeted for indications that affect the elderly
population. Clearly, this is not in the best interest of Medicare
beneficiaries.
The APC system is highly likely to affect access to new therapies
for non-Medicare patients as well. This will occur for two reasons:
First, it is widely anticipated that private payors will follow
HCFA's lead and implement APCs, first in the hospital outpatient
setting and quickly thereafter in the physician office setting. The
consequence of rapid, all-payor implementation of APCs would inevitably
be to skew drug development toward high-volume, low-cost products, the-
only ones for which APC-based reimbursement could possibly be adequate.
Any incentive to develop innovative, potentially higher costs
biotherapies would be gone.
APCs also create a second, more subtle risk issue. To the extent
that drug sales and revenues decrease lack of reimbursement under APCs
for both Medicare and private payors, investors are unlikely to make
funds available to develop and bring innovative yet costly drugs to
market.
Underpayment for new technologies under the proposed APC system
flies in the face of other government programs specifically intended to
accelerate the development and availability of life-saving therapies.
As a result of federal technology transfer laws, in 1997 U.S.
universities received approximately $338 million in gross license
income for licensing out technologies in the life sciences to
facilitate development of these technologies into drugs, biologics,
vaccines or other products. In addition, with the implementation of
FDAMA, signed by the president, the Food and Drug Administration has
implemented numerous initiatives aimed at speeding new product reviews,
in essence to allow patients faster access to new therapies. For
example, under the Prescription Drug User Fee Act of 1992, FDA must
complete its reviews of new biological product applications within
strict, 12-month time frames. It would be a tragedy, now that we have
begun to finally achieve faster FDA reviews of new biotechnology
products and drugs, and substantial public support of biotechnology
products and drugs research, to see these efforts negated by
impediments created by a poorly designed APC system.
major flaws in hcfa's methodology for analyzing claims data,
particularly in terms of biotechnology products and drugs
We strongly believe that HCFA's data methods systematically
underestimates the costs of providing biotechnology products and drugs.
We reviewed the release of additional data in June 1999, a year and a
half after the original proposed rule, and our concerns remain just as
strong.
Multiple procedure claims were excluded from the proposed APC
weight-setting calculation despite that fact that these claims likely
represent patients who are the least healthy and require more costly
services.
As described in the preamble of the proposed rule (63 FR 47573) and
confirmed in subsequent meetings with HCFA, Its analysis for
determining APC weights relied on only single-service claims. It did
not analyze claims that represented multiple procedures. Clearly this
fundamental flaw in the analysis skewed the APC weights, essentially to
reflect care for only the healthiest patients. Patients requiring
multiple outpatient services on the same date of service are likely to
be the least healthy and are likely to require more costly care than
patients who receive a single outpatient service.
In addition, we believe the single-procedure focus HCFA used may
have excluded a disproportionate number of biotechnology products and
drugs, because many of these products are routinely used as part of
multi procedure, combined-treatment regimens. By systematically
eliminating these cases in its methodology, HCFA has inadvertently
biased the APC system against biotechnology products and drugs and
derived payment levels that do not reflect the true costs of care
across the Medicare population.
Dismissing ``outlier''claims in its calculation of APC weights also
likely removed biotechnology products and drugs from the analysis and
therefore under reimburses other categories.
In calculating APC weights, HCFA disregarded claims for services
with costs more than three standard deviations from the geometric mean.
Although HCFA may have found a statistical basis for this exclusion, we
believe that it systematically excluded biotechnology products and
drugs that are often expensive, but vital, components of patient care.
As a result, this procedure results in lowered payment levels that
disproportionately affect biotechnology products and drugs.
Because of inadequate coding practices, HCFA was unable to allocate
the true costs of most drugs used for Medicare beneficiaries.
In the preamble to the proposed rule, HCFA describes its inability
to capture the costs of drugs, other than chemotherapeutic agents,
because of inadequate coding practices, under the precursor Ambulatory
Patient Group (APG) system. HCFA acknowledges that participating
hospitals in the APG system were obliged to consistently use HCPCS
codes only for chemotherapeutic agents. HCFA did not require detailed
coding of other drugs and, as a result, ``cannot specifically identify
the costs'' of these products.<SUP>5</SUP> Further, HCFA requests
comments on how to remedy this problem, recognizing that problems may
exist for hospitals that treat patients with very costly drugs or
biologicals.
---------------------------------------------------------------------------
\5\ Preamble to the proposed rule (63 FR 47563).
---------------------------------------------------------------------------
Although we credit HCFA for identifying this limitation, BIO
believes that HCFA dramatically understates the degree to which it
represents a critical flaw in the APC payment system. First, the APCs
do not merely underpay ``a few'' hospitals that treat patients with
``very costly'' drugs and biotechnology products--the system will
underpay all hospitals for a vast range of routine infusion-based
therapies and other drug-intensive care. While costly biotechnology
products and drugs are disproportionately affected, we believe that
treatment with nearly every biotechnology product produced by our
members will be affected through the underpayment of the APC system.
Second, HCFA reaches an unfounded conclusion that since drugs
usually are provided in connection with other treatments or procedures,
the costs of these products can be reasonably packaged into other
procedure-based groups. BIO finds this assumption patently absurd. The
aberrant and biased method of selecting single-service claims makes it
extremely unlikely that the bulk of drug utilization patterns and costs
have been captured in the APCs. In the case of the infusion APCs, it is
reasonable to assume, based on HCFA's methodology, that the cost of
most biotechnology drug products were not factored into the agency's
analysis because of inadequate coding practices.
HCFA should not extend a PPS system to services or products for
which it has no basis to understand actual costs or utilization.
The inherent bias used in selecting claims for analysis, along with
the absence of detailed coding data for non-chemotherapeutic drugs and
biologicals, essentially means that the proposed APC system has no real
basis in actual costs or patterns of care for biotechnology products or
drugs. BIO believes that this is the case for both procedure-based APCs
as well as infusion-based therapies.
Solution:
THE HCFA ADMINISTRATOR SHOULD ASSERT HER EXEMPTION AUTHORITY TO NOT
INCLUDE DRUGS AND BIOLOGICS IN THE APCs.
The Balanced Budget Act (BBA) of 1997 requires HCFA to establish
groups of covered services that are comparable clinically and with
respect to the use of resources.<SUP>6</SUP> In addition, the BBA
grants the secretary authority to exempt certain products or services
from the outpatient PPS <SUP>7</SUP>. The HCFA administrator should
exercise her explicit exemption authority with regard to biotechnology
products and drugs since it will seriously affect Medicare
beneficiaries' access to several categories of products.
---------------------------------------------------------------------------
\6\ Social Security Act (SSA), as amended 1833(t)(2)(B)
\7\ The BBA authorizes the secretary to designate the hospital
outpatient services to be covered by the outpatient PPS, see SSA, as
amended Sec. 1833(t)(1)(B)(i).
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THE SECRETARY OF HHS SHOULD AT A MINIMUM CARVE OUT CERTAIN KEY PRODUCT
CATEGORIES FROM THE APCs.
The HHS secretary has the authority to designate the services to be
included or excluded from the outpatient PPS. Although we believe it is
most appropriate for the secretary to carve out all drugs and biologics
from the APC system, we have tried to identify more limited categories
of products that would be disproportionately hurt under the proposed
APC system. While BIO acknowledges that broader, systemic problems may
still occur under the APC framework, we believe that it would be
appropriate for seven types of products identified below to be carved
out in order to address the most serious payment shortfalls in the
proposed system. The seven categories are:
1) ``New'' technologies should be paid separately from the APC
system until adequate coding allows for proper reimbursement.
As described above, new technologies will not experience
appropriate levels of reimbursement for several years after they become
available for use. This delay in adequate payment could artificially
delay the full adoption of new technologies because hospital outpatient
departments would lose money with each use. Clearly, such an approach
does not adequately take into consideration the resources involved in
developing new technologies and would impede their development and
adoption.
Accordingly, HCFA should automatically reimburse new therapies
using the current payment mechanism during the entire period that the
product awaits proper HCPCS and APC code assignment.
CASE example: The I-131 Anti-B1 Antibody is a radiological
monoclonal antibody that is expected to be approved for the treatment
of non-Hodgkin's Lymphoma. This product is expected to be the first
radioimmunotherapeutic product approved for the treatment of cancer and
has been shown to produce remission of cancer of longer duration than
standard chemotherapy. Unfortunately, this promising new product will
be assigned a miscellaneous CPT (CPT code 7999, unlisted
radiopharmaceutical therapeutic procedure) and placed in the lowest
paying radiological APC (APC 791, $757.93). For a period of several
years, this product would remain in APC 791 with no additional payment
and then, if warranted, could be redesignated to a higher paying
nuclear medicine APC.
2) ``Orphan'' drug products should be paid separately from the APCs
because the APCs will delay and possibly deny patients access to life-
saving products.
The Orphan Drug Products Act provides for a special marketing
approval status for certain products that treat life-threatening, rare
diseases. Many of these products are the result of years of research,
involving clinical trials with hundreds of patients. By definition,
products afforded orphan approval status by the FDA offer patients with
severe debilitating illness a chance for significant therapeutic
benefit. Typically, these products are afforded special review status
at the FDA in order to expedite review and approval, so that patient
populations will not be denied a viable treatment.
CASE EXAMPLE: A breakthrough orphan drug product, Infliximab; MAb,
tumor necrosis factor alpha, is indicated for Crohn's disease, a
chronic form of inflammatory bowel disease. At present, a supplemental
indication is pending approval for rheumatoid arthritis. A typical
course of therapy for Infliximab involves an infusion over a two-hour
period once every eight weeks. The drug used in a typical infusion
costs $1,800, yet APC reimbursement as proposed would equal only $73.98
for infusion of the drug. If hospitals are obliged to absorb most of
this drug cost because of the proposed APC system, it seems likely that
far fewer providers will make Infliximab available to patients even
though a provider might determine it to be the best treatment .
BIO believes that the impact of the APC system, in delaying proper
code assignment and providing severe underpayment for most orphan
products, will essentially negate the valuable benefits of orphan
status. In some cases, patients who cannot afford to supplement
Medicare's underpayment will literally bankrupt themselves to gain
coverage, or they may be forced to forgo these valuable therapies.
3) Chemotherapy agents and related supportive care drugs should be
paid separately from the APC system.
The proposed rule specifies four different APCs that include 69
different chemotherapy related HCPCS codes. For specific chemotherapy
agents, providers would be able to bill for the appropriate code, along
with an infusion procedure APC. Although a number of the chemotherapy
agents are listed more than once in the different chemotherapy APCs to
account for different dosage levels, the APCs do not nearly account for
the variances in dosing that likely would occur in actual chemotherapy
administration. In addition, some chemotherapy agents do not have HCPCS
codes that specify dosing at all. As a result, payment for some
chemotherapy agents may be inequitable, depending on the dosing used.
In addition, the chemotherapy APCs do not account at all for the
costs of biotechnology drugs and products that are used concurrently
during chemotherapy. As proposed, the APC system would compensate
hospitals for only a fraction of the costs incurred for chemotherapy
patient care, through the billing of infusion codes for each hour of
infusion time. Clearly, the APC system would have dramatic impact on
the availability and quality of patient care for severe cancer cases.
As such, it is important not only that all cancer-related drugs be paid
separately, but that the payment for chemotherapy agents and those
products used in relation to cancer care be reimbursed adequately.
CASE EXAMPLE: Many patients undergoing chemotherapy for treatment
of their cancers receive supportive care drugs to treat neurotropenia,
anemia or nausea or vomiting. Myelosuppressive cancer patients receive
erythropoietin injections from their physicians to treat their anemia
secondary to their chemotherapy treatment and restore the hematocrit
level. Patients may receive Filgrastim, a human colony granulocyte
stimulating factor in order to restore neutriphol counts and treat
their neutropenia. Under the APC system, these products and other
growth factors are classified as incidental, so hospitals would be
reimbursed only for their administration, as little as $38.05 if
injected or $99.24 if infused intravenously, not covering the cost of
either of these therapies. For example, a typical course of Filgrastim
can cost $322 per day for up to two weeks. This reimbursement would not
cover the cost of a routine course of therapy.
4) Biologics and drugs at high risk of not being provided to
beneficiaries who need them also should be paid separately from the APC
system.
As HCFA acknowledges in the preamble to the proposed rule, certain
drug products that may not fall into any of the categories listed above
may result in disproportionate costs to administering hospitals. While
HCFA refers to the possibility of a fee schedule in the preamble, it
also acknowledges that fee schedules create unnecessary administrative
burdens for hospitals. BIO concurs that a fee schedule approach for
costly drugs would not serve the provider community. BIO urges that
HCFA continue to pay for these products as they are currently paid for.
CASE EXAMPLE: Immune Globulin Intravenous (IGIV) is a solution of
immune globulins containing human antibodies. This biologic product is
used to treat a variety of patients who have deficient or dysfunctional
immune systems. IGIV is a large protein molecule that when administered
should be closely monitored for adverse reactions. Some patients, with
a history of complications and transfusion reactions and those with
comorbidities should receive their initial few months of infusion
therapy in a hospital outpatient department where their condition can
be closely monitored. The proposed APC payment of $99.00 would not be
sufficient to cover the costs of IGIV therapy. If hospital outpatient
departments are not reimbursed appropriately for IGIV infusions, the
infusions may be shifted to other, maybe less clinically appropriate
settings.
5) Radiopharmaceuticals and other drugs required for nuclear
medicine procedures will be disproportionately underpaid and should be
paid separately from the APC system.
BIO is concerned with the levels of payment for nuclear medicine,
generally, and severe errors in the calculation of related APC weights.
The proposed APC relative weights that would cover radiopharmaceuticals
are clearly erroneous, as they would provide for higher payment for a
standard therapeutic nuclear medicine procedure (APC 791--$757.93) than
for a complex nuclear medicine procedure (APC 792--$247.33). Further
examination of the baseline data used by HCFA to compute appropriate
weights for APC 791 and APC 792 also suggests that a broad range of
inappropriate or miscoded charges were included in HCFA's
analysis.<SUP>8</SUP>
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\8\ According to public use data released by HCFA on its Internet
web site, CPT 7999, one of the codes that maps to APC 791, the cost
range of 175 sampled claims was $2.51 to $2,452.77. Similar cost ranges
are found in the other CPT codes that map to APCs 791 and 792.
---------------------------------------------------------------------------
BIO also is concerned that the proposed APC system would severely
underpay certain radiopharmaceutical products.
Accordingly, BIO is concerned that baseline payment levels for
nuclear medicine APCs are inadequate, and that radiopharmaceuticals
need to be reimbursed on a reasonable cost basis.
6.) Blood-derived products should be paid separately from the APC
system.
The proposed APC system would systematically underpay a broad range
of blood products and technology-intensive blood derivatives. At
present, BIO estimates that there are 62 different types of blood-
derived products, or recombinantly produced substitutes, produced and
sold in the United States. With few exceptions, the APC system provides
no extra payment for these products, either because they are classified
as incidental or because they do not have specific HCPCS codes.
CASE EXAMPLE: Hemophilia A is an inherited, lifelong blood clotting
disorder that is caused by a deficiency of a plasma protein called
Factor VIII or Antihemophilic Factor (AHF). The mainstay of successful
treatment and prevention of bleeding for patients with hemophilia A is
a prompt and sufficient treatment with AHF concentrates. The typical
hospital cost for a course of treatment with a recombinant form of AHF
can range from $500 to well over $4,000 per intravenous injection.
Under this current proposal, payment for this advanced biologic would
be bundled into an injection APC of $43. By virtue of its expense, all
claims for AHF and other coagulation concentrates were eliminated from
APCs because they fell outside of the allowed standard deviations from
the geometric mean. BIO believes that very few, if any, hospitals in
the country could reasonably afford to suffer the recurrent losses they
would incur by offering this therapy for each patient treated.
As described above, underpayment for Factor VIII offers an example
of how the proposed system would penalize hospitals for treating the
most severely ill patients, and particularly discourages treatment with
more costly, but clinically appropriate therapies. Accordingly, HCFA
should pay for Factor VIII and all other blood-derived products on a
reasonable cost basis.
7) Drug products not covered by the ESRD composite rate should be
paid separately from the APC system.
In the proposed rule, HCFA indicated that it was exploring ways to
accurately reimburse for drugs used outside the ERSD compensation rate.
This is a complicated issue; however, BIO would recommend a carve-out
similar to others we've proposed. Dialysis patients rely on a vast
array of pharmaceutical and biological products targeted to the patient
and his or her needs. Since some products will not be covered under the
composite rate, we believe their access will be curtailed without a
carve-out for those products used in the hospital-based dialysis
facilities.
general statement on implementation of the hosptial outpatient
prospective system:
Phase-In Requirement:
If there is no carve-out for all biologics and drugs, the
outpatient must be phased-in.
As stated in the preamble to the proposed rule, HCFA intends for
the APC system to prompt hospitals to provide services in a more cost-
conscious manner, as was the case following implementation of the
diagnosis-related group (DRG) system for inpatient care.<SUP>9</SUP> We
believe there are critical differences between the DRG and APC systems
and the services they affect, particularly in the economics of patient
care and the potential for savings. Where the DRGs realized substantial
savings by reducing the lengths of inpatient hospital stays, no such
savings are possible for outpatient services. Indeed, many services
formerly provided in the inpatient setting are now provided outpatient,
thanks to advances in biotherapy. In addition, it is likely that the
costs of biotechnology products and drugs represent a greater
proportion of outpatient care costs than they do of inpatient care
costs. As a result, outpatient departments will face greater payment
shortfalls than inpatient departments experienced with DRGs, but will
have far less opportunity to reduce overall costs of care.
---------------------------------------------------------------------------
\9\ The preamble to the proposed rule makes several references to
the inpatient PPS, see 63 FR 47554, 47557.
---------------------------------------------------------------------------
Another important difference between the DRG system and the
proposed APCs is that the proposed APC system is largely untested, yet
will not be phased in. This means that any defect in the APC system's
design could significantly negatively hurt care with unknown and
unpredictable consequences for millions of Medicare recipients.
Finally, any disruption in patient care due to the APCs
implementation will occur without the availability of viable
alternative settings to absorb patients. When the DRG system was
implemented, many hospitals were able to shift certain types of care to
outpatient departments. Under the APCs, there will be no alternative
hospital-based setting to absorb these outpatient cases.
Accordingly, it is essential that economic constraints under a new
outpatient PPS not force hospitals to choose between providing these
services at a huge loss, shifting them to inappropriate less intensive
care settings, admitting patients when it is not necessary, or not
providing the service, at all.
Volume Control Measures:
The proposed volume expenditure caps will exacerbate the access
problems created by this proposed rule. These caps should be eliminated
from the outpatient PPS.
Volume expenditure caps, as included in this proposed rule, will
force hospitals to bear the cost in changes in cost of care. Under the
proposed caps, annual updates to hospitals could be reduced if Medicare
spending for outpatient services exceeds HCFA estimates. This means
that if overall outpatient costs increase, hospital reimbursement could
be cut. This will have a great impact on a hospital's ability to
utilize new technologies or even the most appropriate technologies for
fear of hitting the volume expenditure caps. This will affect quality
of care tremendously.
We suggest HCFA explore other ways of controlling what it deems to
be unnecessary volume. Arbitrary caps on the outpatient setting will
slow down how and where new medical technology is used. Over the last
several years, many procedures and much therapy delivery have migrated
to the hospital outpatient setting because it was considered more
appropriate and less costly. To put arbitrary volume caps on the
outpatient setting could shift more care to the inpatient setting and
therefore increase costs to the Medicare program.
summary of recommendations
In view of the extensive and systemic problems in deriving APC
weights and APC groups, BIO urges that the HCFA administrator carve out
biologics and drugs from the proposed APCs. We recommend that HFCA
carve out seven categories of products. It is reasonable to expect that
any revised prospective payment method will not adequately reimburse
providers for the use of products in these categories listed below:
1) ``New'' technologies that are awaiting proper HCPCS and APC code
assignment.
2) Orphan drug products.
3) Chemotherapy agents and related supportive care drugs.
4) Biologics and drugs at high risk of not being provided to
beneficiaries who need them most.
5) Radiopharmaceuticals and related drugs.
6) Blood-derived products.
7) ESRD-related products not paid under HCFA's composite rate.
We also recommend that HCFA phase in this hospital outpatient PPS
system gradually since much of the data necessary to establish a valid
system has not been collected to date.
We also urge HCFA to eliminate volume expenditure caps from the
outpatient PPS.
BIO looks forward to working collaboratively with HCFA in revising
its proposed APC system, in order to better serve the needs for quality
care of the Medicare population.
Thank you for this opportunity to comment on this proposed rule.
BIO and its member companies will be pleased to work with HCFA to find
a solution. If there are any questions about these comments, please
call Nancy Bradish Myers at (202) 857-0244. Again we appreciate the
opportunity to comment on the proposed rule.
biotechnology industry organization (bio)
BIO is the largest industry organization to serve and represent the
emerging biotechnology industry. Our membership comprises the world's
leading producers of important medical innovations, including
recombinant biotech products, blood products and related derivatives,
and in vitro diagnostic tests. In total, BIO's membership includes 835
companies, academic institutions, state biotechnology centers and
related organizations located in 47 states and more than 20 nations.
These member firms provide over 150,000 jobs in the United States, with
over two-thirds of our members operating with fewer than 135 workers.
At present biotech companies have over 300 drugs in human clinical
trials and more in early stages of development.
The products of our member firms span a broad range of life-saving
therapies that often are the only treatment options available for
patients suffering from life-threatening diseases. Currently, there are
80 biotech drug products and vaccines on the market, many of which are
provided in the hospital outpatient department.
Mr. Bilirakis. Thank you very much, sir.
Mr. Dingell to introduce Mr. Warden, who has not testified
as yet. He has been sitting there very patiently waiting for
your introduction.
Mr. Dingell. It is a great kindness, Mr. Chairman, and I
thank you for it.
It is a great pleasure for me to welcome and introduce my
good friend Gail Warden, who runs a very fine hospital back
home, Henry Ford, and who is not only a distinguished
practitioner in the business of hospital administration but
also who is very active in all manner of community affairs back
home. He is not only a respected citizen of our community but,
as I say, runs a superb hospital and is a good friend of my
wife Debra and I and Mr. Warden, we are happy to welcome you to
the committee.
Thank you for that courtesy, Mr. Chairman.
Mr. Bilirakis. You are very welcome, sir.
STATEMENT OF GAIL L. WARDEN
Mr. Warden. Thank you very much, Mr. Chairman and
Congressman Dingell.
I came to this hearing today prepared as a representative
of the American Hospital Association and as one of its former
chairmen, as well as a representative of my own institution,
the Henry Ford Health System of Detroit. I had planned to make
my oral testimony somewhat coincide with what was in the
written testimony and to elucidate on it, but I must say that I
have been very impressed with the knowledge of the issues of
the members of the subcommittee, the homework that they have
done and they know the studies that have been done and the
discrepancies in those studies and the overshot that took place
in the Balanced Budget Act. So I am not going to spend a lot of
time talking about that again.
Instead, I would like to take time to really talk about two
things. I would like to, having heard that there had not been
as much impact upon quality and access as might have been
expected, give you two anecdotes, one about the city of Detroit
and another about a hospital in Manistique, Michigan, and then
I would like to finish by making some comments about the
outpatient PPS.
In the city of Detroit there really are three safety net
hospitals: the Detroit Medical Center, the Henry Ford Hospital
and a hospital named Mercy Hospital. The combined impact of the
Balanced Budget Act and reductions in Medicaid payment upon
those three institutions has been substantial. In each case
there have been large financial losses and large lay-offs. The
Detroit Medical Center has laid off over 2,000 people. Our
organization has laid off 800 and will be laying off another
1,000 people.
We have closed clinics, consolidated clinics, reduced
services in community-based programs. Generally the challenges
continue to get greater and we are both experiencing continued
increases in uncompensated care and the amount of uninsured,
with the Detroit Medical Center having about $120 million in
uninsured care and our organization about $60 million.
The third institution, Mercy Hospital Detroit, has been
similarly impacted but they do not have the resources or
reserves to fall back on and there is a very good chance that
they are going to close. What it is going to mean is that in
order to maintain access to those institutions for the people
in the city of Detroit is that our two institutions are going
to have to come together and try to find some way to make that
happen. So my point is that the urban safety net is being
impacted by the Balanced Budget Act.
Second, in the case of the hospital in Manistique, it is
the sole provider within a 70-mile radius. The impact of the
Balanced Budget Act on them was about 10 percent and the one
program that is threatened right now is obstetrics. If they are
to close their obstetrics unit, there will be no obstetrics and
gynecology program for at least 70 miles in any direction.
Again it is a product of the impact of the Balanced Budget Act
on that particular institution.
In relationship to the outpatient PPS, I would like to talk
about three specific concerns. The first one obviously has been
discussed on a couple of occasions today, that the original
projection by the Medicare Payment Advisory Commission was that
hospitals will currently pay 90 cents on the dollar and that
under BBA they would be paid about 82 cents on the dollar. We
also heard today about the additional 5.7 percent reduction
that HCFA plans sometime in the near future.
We also heard about the 255 members of the House and 77
members of the Senate who have signed on to bring about some
relief from that and we are particularly impressed with the
bill that Representative Foley has introduced, which would cap
outpatient losses at 5 percent at the current rate, 10 percent
in the current year, 10 percent in the second year and 15
percent in the third year.
The second issue that we are concerned about relates to
something that is kind of hidden in the regulation which
relates to provider-based provisions. It impacts organizations
like ours, the Cleveland Clinic and Johns Hopkins,
organizations who, in an effort to try to bring care closest to
the community in a fairly large service area, have developed
ambulatory care centers. But the provision says that these must
be licensed by the State and in most cases they are in States
that do not license these facilities as outpatient facilities
because they are extensions of the hospital. We believe that
consideration should be given to a joint commission of
accreditation as a proxy.
The third consideration that we want to raise is about the
data that HCFA used to calculate payment under outpatient PPS.
In my own organization's case, the HCFA estimate was that we
would have a $1 million increase in income. Our detailed
analysis identified several discrepancies in the estimate which
are related to the fact that the information did not dig down
deep enough. Only about 30 percent of the services provided
were not accounted for and we calculate the impact is going to
be about a $9.6 million loss.
If you combine that with the losses that we have already
experienced in the Balanced Budget Act and the losses of $12-
$25 million that might result as a result of the provider
payment provisions, it adds up to a substantial amount and will
make our reduction in revenue for Medicare for a 5-year period
somewhere in the neighborhood of $225 million, which seems just
too much if we are going to continue to maintain our safety net
provider role. I thank the committee very much for the
opportunity to talk to you.
[The prepared statement of Gail L. Warden follows:]
Prepared Statement of gail Warden on Behalf of the American Hospital
Association
Mr. Chairman, I am Gail Warden, president and CEO of Henry Ford
Health System in Detroit, and former chairman of the American Hospital
Association (AHA). I am here today representing the AHA's nearly 5,000
hospitals, health systems, networks, and other providers of care. We
appreciate this opportunity to present our views on an issue that is
dramatically affecting hospitals in communities across America: The
Balanced Budget Act of 1997 (BBA). Our testimony focuses primarily on
how the act is affecting Medicare payments for outpatient services. But
first I'd like to review the overall effects of the BBA on hospitals
and health systems.
overall effects of the bba
For over a year, hospitals across the country have been sounding
the alarm about problems associated with implementation of the BBA. In
all parts of the country--urban as well as rural--we are documenting
service closures and cutbacks as hospitals and other health care
facilities attempt to wrestle with the BBA's dramatic reductions.
The BBA mandated the largest changes in Medicare since the
program's inception in 1965. In addition, the budgetary impact of these
many changes were vastly underestimated. A study conducted by The Lewin
Group found that the originally estimated five-year BBA hospital
payment reduction of $53 billion is, in reality, more in the range of
$71 billion--an $18 billion increase. And the Congressional Budget
Office (CBO), in its July 1 estimate of federal revenues and spending,
reported that the Medicare payments will total $206 billion less than
CBO predicted when the act was adopted.
Given this massive change and the disruption it is creating, we
urge Congress to enact the following initiatives, funded through the
budget surplus. These initiatives represent a broad-based relief
effort--an effort that would provide effective relief not just for
hospitals, but for a variety of health care providers who take care of
Medicare beneficiaries in several different settings.
Transfer policy--Medicare patients sent from one acute care
hospital to another are defined as transfers. Under the BBA, HCFA
defines transfers to include cases where a patient in one of 10
diagnosis-related groups (DRG) chosen by HCFA, stays in the hospital at
least one day less than the national average and then is sent to one of
several post-acute care settings. In the past, hospitals received the
full Medicare DRG payment for each discharge under PPS, regardless of
the patient's length of stay. Payments for cases shorter than average
stays help defray the costs of caring for patients with longer-than-
average stays. This rule of averaging is one of the fundamental
principles upon which PPS was built. AHA urges you to repeal the
unnecessary and unwarranted transfer provision by adopting H.R. 405.
Advances in science and technology--the Medicare Payment Advisory
Commission (MedPAC) has reported that hospitals will ``incur
significant operating and capital costs in becoming year 2000
compliant.'' As a result, MedPAC has recommended that a modest increase
in hospital inpatient payments be made to help offset the costs of
these improvements to medical devices and information systems. AHA
urges adoption of MedPAC's recommendation for a modest PPS update to
compensate hospitals for Y2K readiness activities, through the passage
of H.R. 2266.
Rural relief--Because of their small size, rural hospitals are
often unable to absorb the impact of changes in payment and regulatory
policies. With the mounting pressures of the BBA, these facilities
warrant special consideration, especially considering their role as the
hub of the local health care delivery system. AHA urges relief for
rural health care providers--particularly sole community providers,
critical access hospitals, and Medicare-dependent hospitals--through
the adoption of provisions of H.R. 1344.
Medical education--This nation's medical schools are often referred
to as national treasures. Yet under the BBA, Medicare's indirect
payment for medical education is scheduled to be reduced from 7.7
percent to 5.5 percent by FY 2001. We all benefit from the research and
medical education conducted in our medical schools and teaching
hospitals, but this reduction is making it difficult for these
institutions to maintain their cutting edge prominence. AHA urges
relief for our nation's teaching hospitals by freezing the current
schedule on further indirect medical education reductions through the
adoption of H.R. 1785.
Disproportionate share payments--The BBA took an important step by
removing hospitals' clinical education payments from Medicare+Choice
payments. This move was made to ensure that payments be made to those
facilities actually incurring the added costs. Unfortunately, BBA did
not remove the important disproportionate share (DSH) payment. This
special payment is made to support the additional costs hospitals incur
in treating large numbers of low-income individuals. Without this
funding, these institutions will experience difficulty in maintaining
access to vital health care services for low-income individuals. AHA
urges relief for hospitals serving the uninsured by carving out the
disproportionate share payments from the Medicare managed care payment
by adopting H.R. 1103.
Managed care--The BBA set in motion a long-overdue change to the
Medicare program by reducing geographic variations in managed care
payments. This equity update to Medicare+Choice payments would be
accomplished by ``blending'' the county rate with a national rate, thus
reducing the historic variation in Medicare health plan payments from
county to county throughout the country. HCFA has had difficulty fully
implementing this provision due to the way the law was drafted. AHA
urges the full funding of the Medicare managed care payment blend to
provide fair payment in all parts of the country by adopting H.R. 406.
Long-term care--The BBA reduced skilled nursing facility (SNF)
payments by $9 billion over five years. At the same time, it required
HCFA to implement a prospective payment system (PPS) for these
services. The new PPS is not refined enough, however, and therefore
fails to adequately account for differences in costs associated with
the care of medically complex patients. In particular, the payment for
non-therapy ancillaries (pharmaceuticals, respiratory therapy and
special equipment) is the same proportion across all the categories in
the payment system, even though for some patients care costs are much
higher.
Both HCFA and providers believe these issues can ultimately be
addressed by revising current case-mix categories (Resource Utilization
Groups) used in the new SNF PPS to reflect these types of patients.
However, HCFA cannot make any changes to case-mix until after 2000, and
additional dollars are still needed to mitigate the consequences of the
BBA. HCFA has also not completed its research on how to improve case-
mix. Based on preliminary research by HCFA contractors, patients in two
RUGs categories--``extensive services,'' which includes patients who
need IV feeding, IV medications, or require ventilators, and ``special
care,'' which includes patients who have multiple sclerosis, cerebral
palsy or require respiratory therapy seven days a week--have much
higher non-therapy ancillary costs than other patients. The current
payments for these RUGs are far below the costs of providing the
services, ranging from a high of 81 percent to 62 percent of costs.
A multiplier could be used to increase the payments for these
groups--extensive services and special care--until the final case-mix
improvements can be made by HCFA. The multiplier will no longer be
necessary once the Secretary refines case-mix and the funding can then
be used to fund the revised case-mix format. The multiplier can be
implemented regardless of the Y2K restrictions since HCFA already plans
on updating the RUG rates in October 1999.
Psychiatric PPS--Cuts to psychiatric services were also included in
the BBA. As a result, many hospitals serving the mentally ill will
receive payments below previous levels--real cuts. AHA urges
adjustments to payments to psychiatric hospitals in a budget-neutral
manner by adopting H.R. 1006.
Home health--BBA included a number of changes in payment, coverage,
and administrative requirements for home health agencies. Until PPS
could be implemented, BBA provided for an interim payment system (IPS)
designed to reduce payments to home health agencies. The IPS was the
first of the BBA's provisions to be implemented and created a number of
disruptions in access to services in some areas of the country. AHA
urges that additional funding be targeted to home health providers to
minimize the ongoing inequities of the IPS, and lessen the 15 percent
payment cut scheduled for the home health PPS in FY 2001.
limiting losses under outpatient pps
According to a recent MedPAC report, Medicare reimbursed hospitals
only 90 cents for each dollar of outpatient care provided prior to
enactment of the BBA. Today, as a result of the BBA, hospitals are paid
only 82 cents on the dollar. And after PPS is implemented, HCFA will
reduce hospital outpatient payments by another 5.7 percent. However,
according to HCFA's own estimates, many hospitals will lose much more
than 5.7 percent. More than half of the nation's major teaching
hospitals would lose more than 10 percent; nearly half of rural
hospitals also would more than 10 percent.
In addition, catastrophic losses would be experienced by some
individual hospitals. For example, large hospitals in Iowa and New
Hampshire will immediately lose almost 14 to 15 percent of their
Medicare outpatient revenue. Other large urban hospitals in Missouri,
Massachusetts, Wisconsin, Florida, and California stand to lose 20
percent to 40 percent. Some New York City hospitals would lose more
than 40 percent. Some small rural hospitals in Arkansas, Kansas,
Mississippi, Washington, and Texas will lose more than 50 percent of
their revenue.
To prevent these precipitous drops in Medicare revenues from doing
additional harm to hospitals and the Medicare beneficiaries who rely on
them, we urge passage of legislation that would limit payment losses
created by the move to outpatient PPS. However, the costs of financing
this proposal should not be paid by the remaining hospitals, because
most of them are also expected to lose under the outpatient PPS.
Moreover, large new losses would have to be incurred by those
hospitals, ranging from 3 to 8 percent, to protect other hospitals from
losses of 5 to 15 percent. Instead, this change needs to be funded by
additional Medicare program spending. Beneficiary spending would be
unaffected.
Under our proposal, until January 2002, each hospital's Medicare
payments for outpatient PPS services would be adjusted so that the
hospital's losses are limited to 5 percent of what the hospital would
have been paid by Medicare under the current system. For calendar year
2002, the payment losses would be limited to 10 percent. For CY 2003,
the payment losses would be limited to 15 percent. No limit is set
after 2003. Depending on whether HCFA changes its interpretation that
unfairly shifts the 5.7 percent reduction in beneficiary copayments
from the Medicare program to hospitals (see below), this proposal will
require roughly $1.9 billion over five years in new funding.
MedPAC chair Gail Wilensky recently supported phasing in the
outpatient PPS, stating ``to mitigate unintended effects and help
people adjust to the new system, it's wiser to phase in just about any
big payment change.'' In addition, a June 2, 1999 New York Times
article noted Dr. Wilensky's comment that ``Medicare is paying too
little for outpatient services.'' The AHA agrees, and urges your
support for legislation that would provide such a payment ``floor'' and
protect hospitals from unreasonable losses during the transition to
outpatient PPS. Such legislation (H.R. 2241) was introduced in June by
Rep. Mark Foley (R-FL), and has 68 co-sponsors. We urge you to support
it.
regulatory changes
As HCFA works toward implementation of outpatient PPS, there are
several areas of concern we have with the apparent direction in which
the agency seems to be headed. Specifically:
Provider-based outpatient facilities: Hospitals are no longer just
buildings with four walls. Today, more than ever, advances in science
and technology have allowed hospitals to reach out into their
communities to bring care where it is needed. This is especially true
of outpatient services. In community after community across America,
hospitals are working with others in their communities to bring care
where it is needed.
Unfortunately, HCFA threatens this expansion of care by adding too-
narrow requirements for determining what entities can be considered
hospital outpatient departments. While there are reasonable and
important distinctions between hospital outpatient departments and
physician offices, HCFA's requirement for state licensure is
arbitrarily biased against providers in states where licensure does not
even exist to cover off-campus facilities. Conditions of participation
or accreditation should be used where licensure is not available.
Moreover, the proposed requirement that Medicare should mirror how
other payers view these facilities is one-sided, ignoring contractual
arrangements between hospitals and private insurers that offset the
lack of a facility fee. These requirements will discourage hospitals
and health systems from reaching out and bringing high-quality health
care to underserved areas of their communities.
Volume cap: HCFA proposes to reduce future payment updates if
Medicare payments for hospital outpatient services exceed the agency's
projections. If this proposal is implemented, hospitals would be
penalized for adopting new technologies and treatments that increase
the volume of outpatient services while also enhancing the lives and
comfort of beneficiaries.
The President's Medicare reform proposal indicates that the
administration is considering delaying implementation of this proposal.
While we commend the administration, just a delay of bad policy is not
sufficient. We strongly urge HCFA to exercise its option under the BBA
to drop this provision altogether. Doing so will ensure that
beneficiaries have continued access to new treatments and technologies
in the outpatient setting.
Accuracy of data: We are extremely concerned about the data with
which HCFA is calculating its payment rates under outpatient PPS. For
example, HCFA estimated that Henry Ford Health System would see an
increase of almost $1 million in outpatient payments under PPS.
However, our own analysis identified several discrepancies in HCFA's
estimates. In fact, we calculate that Henry Ford will actually see a
decrease in payments of $9.6 million, or 21 percent of our total
outpatient revenue. If a hospital like ours, which was expected to see
a slight increase in payments, actually experiences a 21 percent
reduction, what will happen to those many hospitals projected to
experience a 30 percent loss?
The BBA requires that HCFA use a reliable payment methodology. The
margin of error we have found clearly indicates HCFA's proposal does
not meet this requirement. This is a key reason why a payment ``floor''
is needed, such as Rep. Foley's bill (H.R. 2241), which I mentioned
earlier in this testimony. Such a floor would protect hospitals from
catastrophic losses while HCFA makes the coding/reporting changes
needed to provide HCFA with accurate information so the agency can in
turn provide more accurate projections of the effects of outpatient
PPS.
One way to refine the data is to create a panel of hospital
outpatient administrators and government staff who can work together to
review the classifications.
Chemotherapy: The AHA believes that there are serious problems with
the data HCFA is using to determine payment for chemotherapy services.
As a transitional payment methodology, the AHA recommends that HCFA
carve out the costs for chemotherapy and chemotherapeutic agents and
pay on a reasonable cost basis until the agency fixes the underlying
coding problems, collects new data, and proposes new groups or rates.
The results would then be included in a subsequent proposed rule.
Otherwise, hospitals may be forced to close their cancer centers rather
than provide lower quality or inappropriate care.
In addition, HCFA's proposal to classify new agents in the lowest
cost group does not reflect what we expect in the future for drug
costs. According to the Bureau of Economic Analysis and other sources,
most of the new drugs--especially new genetically engineered drugs--are
more costly than prior drugs. Clearly, this proposal would penalize
hospitals for using new pharmaceuticals. Moreover, it is incumbent on
the agency to get the information it needs on drug prices to ensure
that it can classify new drugs, or any new technology, into the most
appropriate group from the standpoint of both clinical coherence and
resource use. The AHA opposes HCFA's proposal to place new agents in
the lowest payment group.
opposition to the 5.7 percent cut
As mentioned earlier, once the new outpatient PPS system is
implemented, HCFA plans to reduce hospital outpatient payments by
another 5.7 percent. This means that, on top of the $9 billion in five-
year outpatient payment cuts already included in the BBA, hospitals
would suffer another cut of $900 million annually. This is contrary to
the wishes of more than 255 members of the House, and 77 members of the
Senate, who signed recent letters to HCFA opposing this arbitrary,
unfair, and uncalled for cut.
According to the congressional letter, HCFA's proposal decision to
cut an additional $900 million from Medicare outpatient payments is
``inconsistent with Congress' intent,'' and would be ``inappropriate
and unwise.'' The AHA believes that HCFA has the flexibility to
interpret the law correctly, so that the proposed payment system does
not extract another $900 million from hospitals.
conclusion
The vision of America's hospitals and health systems is ``a society
of healthy communities.'' High-quality outpatient care is a cornerstone
of this vision, as more and more hospitals break down their figurative
four walls and reach into the community to provide care where and when
it is needed. The scientific and technological advances that allow us
to do this reflect the kind of innovation that will serve Americans
well into the next century.
In order for hospitals and health systems to continue providing
high-quality outpatient care, it is critical that outpatient PPS be
implemented carefully. We look forward to working with Congress and
HCFA to fix the problems that I have outlined.
Mr. Bilirakis. Thank you, Mr. Warden. Hospitals in Florida
certainly are closing left and right and others are threatening
to close. I know those that we do not know about Mr. Koon, who
is sitting behind you, tells us about that.
So we hear you all, believe me. You have had the
unfortunate problem of sitting in the audience since 10 this
morning listening to all the other witnesses, so you know that
we have basically heard it all, I think.
Dr. Corlin, you stated the largest shortcoming in SGR
payments due to incorrect estimates are felt in Florida.
Mr. Corlin. Yes, sir.
Mr. Bilirakis. Now HCFA claims that it does not have the
legal authority to correct the estimate from year to year. You
say--I think this is your word--incredulous. You say that that
is incredulous.
I wonder if you could have your legal experts at AMA
substantiate your position for the record. We are meeting, as
Mr. Brown and others know, we are all meeting together with Mr.
Hash hopefully next week and staffs are meeting later this
week, although I do not know with the hurricane coming up this
way, I am not sure about that. By the way, this is the proposed
path. It's not going to hit Michigan.
But in any case, I do not know about the staffs' meeting
later this week, I guess is what I mean. But we would like to
have that information in case any problem develops. I mean as
much as they can make administrative fixes, it would be so much
easier for the overall effort.
So if you could have your legal people furnish that to us,
you say it is incredulous. I assume that that is based on
probably what your legal people have said to you?
Mr. Corlin. Yes. I obviously do not have that information
on hand now.
Mr. Bilirakis. No, of course.
Mr. Corlin. I will see to it that the responses to your
questions are faxed to both you and Mr. Brown before the end of
the week.
Mr. Bilirakis. Okay, great. And of course we will have
plenty of questions for all of you in writing and we would ask
for you to respond to them.
As I said earlier, we hear you and I hope we are getting
the message across to you that we are going to try to do
something.
Now Miss Roberts, I am just going to use you as a
representative of all the provider organizations, not only
those that are here but some who are not. You stated that there
were 2,486 home health agency closures. I do not know over what
period of time these took place. We do know that in the decade
prior to 1997 the number of home health agencies almost doubled
to 10,524, according to GAO.
Now I am making these points just to show you all that
everybody was imploring upon us to do everything we could, to
basically try to save Medicare and that sort of thing. And you
know this is what we were faced with. And unfortunately, what
we did was we overdid it and we admit that unintended
consequences took place.
GAO told us that in 1989 there was an average of 27 visits
per home health patient. By 1993, just 4 years later, the
average had become 59 visits, a 118 percent increase since
1989. By 1996 the average had risen to 79 visits, a further 34
percent increase. 1997 data indicated there was a drop back to
72, but still a 167 percent increase above the 1989 level.
So this is the sort of thing, and obviously home health
care is not the only problem out there but this is the sort of
thing we were faced with in terms of trying to draft up that
legislation. And, as I said earlier, this is big stuff. It was
bigness and we are an ivory tower and we try to do the best
that we can. In spite of the fact that we have 2 or 3 doctors
on this committee now, which is something we did not have
before, we did the best we could but we messed up in many areas
and we are trying to fix it now.
I do not know that I really have any more questions. I do
want to thank you for being here and to apologize for the long
delay.
With Mr. Brown's permission I would like to recognize Mr.
Dingell to inquire. Would you like to inquire?
Mr. Dingell. Yes, if it is my turn, Mr. Chairman.
Mr. Bilirakis. Mr. Brown yields to you.
Mr. Dingell. Thank you. Mr. Brown, I thank you.
Mr. Warden, let's talk about the situation in our area in
Michigan. We are liable to lose four hospitals back there in
the very immediate future; isn't that so?
Mr. Warden. That is correct.
Mr. Dingell. That will come about in good part because of
the level of payments both for Medicare, Medicaid and other
Federal services; is that right?
Mr. Warden. Those are the primary reasons, yes, sir.
Mr. Dingell. That could come as early, say, as January?
Mr. Warden. All of them will happen between January and
July of the year 2000.
Mr. Dingell. What would the consequences be to the patient
population back there in terms of what that would do?
Significantly, the Medicare-Medicaid population would suffer
significant loss of opportunity to get good treatment. It would
mean also further declines in the level of service available to
them. It would also mean waits and things of that kind. It
would mean that all of the remaining hospitals would
essentially be functioning at or above their level of capacity;
isn't that so?
Mr. Warden. That is correct. Actually in the case of the
hospital in the city of Detroit, it would basically mean that
there is no hospital on the east side of Detroit if that
hospital closes. Closing with that will be several clinics that
are operated by that institution. It will mean that the
patients are going to have to go further to receive care. It
will mean that more care will be delivered in the emergency
room, which means delays in treatment, and it also will mean
that it will have an impact, I think, upon the other services
that are available in those communities because a lot of the
other community services have been backed up by the hospitals.
In the case of the other institutions that are threatened,
it will mean that in most cases people will have to go further
to get care and there will be some physicians who are somewhat
displaced because they have been practicing in those
institutions and will have to find another venue.
Most importantly, it is going to mean delays in seeking
care and the ability to get to the place to have care. One of
the big problems in the city of Detroit is the lack of a good
public transportation system that goes east and west in order
to be able to bring those patients to where they need to be.
Mr. Dingell. Now what will be the level of compensation to,
for example, your hospital under the BBA for Medicare-based
patients? What percentage of your actual bill will be
compensated?
Mr. Warden. Our percentage of Medicare is somewhere in the
neighborhood of 33 percent.
Mr. Dingell. Thirty-three percent?
Mr. Warden. Thirty-three percent of our revenues.
Mr. Dingell. Your actual costs.
Mr. Warden. But the impact upon our revenues over a 5-year
period, starting with about $19 million reduction in 1998 and a
little more in 1999, about 38 in 1999 and it goes up to 40
some.
Mr. Dingell. Million.
Mr. Warden. And it will level off, but it is well over $200
million for a 5-year period.
Mr. Dingell. I was over at another hospital and I asked
them about what their level of compensation was at that time
and it was 55 percent. I said, ``Now how do you folks make
yourselves whole on this particular basis?'' I said, ``You must
have a whale of a fundraising capability.'' They said, ``No, we
are deferring capital investments.''
How do you address this problem?
Mr. Warden. Well, we are doing several things. Obviously,
as I indicated, we have laid off a number of employees in the
organization. We have taken our annual capital expenditures for
something just under $100 million a year down to about $20-$25
million, which basically is just maintenance kinds of
expenditures.
Mr. Dingell. No new----
Mr. Warden. No new technology. No new information
technology. No new facilities because we are dependent upon our
bottom line to be able to fund capital.
Mr. Dingell. Is that approximately the same situation other
hospitals are confronting?
Mr. Warden. Absolutely.
Mr. Dingell. And they are doing it about the same way?
Mr. Warden. Right.
Mr. Dingell. As a matter of fact, I asked the hospital I
was referring to, I said, ``Now, this means that you are not
making investments very shortly in restoring your capital
structure; you are shortly going to be out of business,'' and
they said, ``That is right.'' And they are one of the hospitals
I am worried about remaining in business.
Now are there any other situations? You mentioned the
hospital up in Manistique. Are there other hospitals in
Michigan----
Mr. Warden. There are other rural hospitals in Michigan.
Mr. Dingell. Rural hospitals?
Mr. Warden. Yes. There are other rural hospitals and there
are urban hospitals, teaching hospitals in Flint and Muskegon
and Grand Rapids and St. Joseph's Benton Harbor that are being
impacted in a similar manner.
Mr. Dingell. The hospitals which have been compensated
under the Hospitals of Excellence or teaching hospitals and
things of that kind, what is their situation?
Mr. Warden. Well, the institutions that we are talking
about are the ones that get recognized as centers of excellence
but they also have the other mission of being the safety net
for the State or for the city.
And the University of Michigan--I failed to mention them--
they are also being impacted. They are the safety net pretty
much for tertiary care for the rest of the State and they are
also being similarly impacted.
Mr. Dingell. This means that there will be less and less
places available for residents of rural areas to get their
health care treatment made available to them within the
Medicare or Medicaid framework?
Mr. Warden. Over time.
Mr. Dingell. Or indeed to get it made available at all;
isn't that right?
Mr. Warden. Well, over time it would continue to erode and
it is going to be a challenge, yes.
Mr. Dingell. And the practical result of this is that when
the Federal Government does not pay you fair costs for
delivering services, you have to shift your costs to other
payers, i.e., people who do not have insurance and who have to
pay their bills directly; isn't that right?
Mr. Warden. The major employers of Detroit are not into
having anything shifted to them.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Dingell. Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Burr.
Mr. Burr. Thank you, Mr. Chairman.
Miss Rapp, let me just ask you what happens when a patient
reaches the PT cap in any 1 year?
Ms. Rapp. Well, if the services are needed, we are kind of
in a Catch-22 because OBRA mandates that we provide services
that are necessary. So either the facility pays the bill or the
family pays the bill.
Mr. Burr. Is it safe to say that a long-term care facility
today reaches a point that if a patient requires physical
therapy that their choice is to pay for it themselves or break
the law?
Ms. Rapp. I would say so, yes.
Mr. Burr. I mean that is the choice that you have,
realistically.
Ms. Rapp. Yes.
Mr. Burr. Do you think that Congress or the Health Care
Financing Administration understood the corner of the room they
were placing the industry in with the cap?
Ms. Rapp. I do not think they had any idea.
Mr. Burr. Given that a facility chooses not to supply the
service, and I am not suggesting that anybody does that but I
think realistically we know that that economic decision is
being made, what happens to the patient? What is the
consequence of going without the therapy?
Ms. Rapp. Depending upon the therapy, obviously they are
receiving therapy because they have an opportunity to either
walk, swallow so that they can feed themselves, et cetera. So
whatever it is that the services were providing, they will not
have that opportunity. They become more dependent.
Mr. Burr. Mike started his statement today with the new
benefits under Medicare that Congress and HCFA were able to
implement over the last few years, the preventative things. And
I remember through the process of selling those, part of the
pitch we had to go through was to convince our colleagues up
here that there were cost savings to supplying and expanding
coverage in the prevention areas that allow individuals who
were diabetic to have daily monitoring equipment paid for and
covered, for women to have mammograms, men to have PSA, that
early detection was, in fact, a cost savings.
Why do you think it is so tough for us to realize that if
we stop physical therapy before there has been a recovery that
this would be a long-term cost to us in some other form of
health care required?
Ms. Rapp. You know, it would be easy to track those
numbers. I understand data is a big, big issue here in this
town.
Mr. Burr. Is that an easy connection to make?
Ms. Rapp. Oh, absolutely.
Mr. Burr. Let me ask you what happens to an individual in
the same year that they have reached the cap under current law
if they experience another illness?
Ms. Rapp. If they have reached their cap, either the
facility pays for it or the family pays for it.
Mr. Burr. So there are no conditions under existing law
where multiple illnesses would retrigger any type of service
supplied to them?
Ms. Rapp. Not under Part B.
Mr. Burr. Mr. Holveck, let me ask you just very quickly, as
long as HCFA is responsible for Medicare it will take a long
time to get new devices and drugs into the system under
coverage from Medicare. How long does it take today?
Mr. Holveck. Currently they rely on their own data and it
could take 3 to 4 years. The average would probably be 3 years
from the time the technology is introduced to the time it
receives a reimbursement code. We have had this issue with one
of our cardiovascular drugs.
Mr. Burr. Now put it in context for me, if you will. Is
this during the application process at FDA that they are
looking at or is it after the approval by FDA?
Mr. Holveck. Once it is approved and commercially
available. Once it is commercially available, then they start--
you have to apply and then they will start to track the data
and they will issue a code.
Mr. Burr. So the individuals that are covered under their
government health care plan--Medicare--could potentially have
to wait up to 3 years before a new therapy or device might be
eligible to be used on them?
Mr. Holveck. That is correct. In the meantime the hospital
is straddled with that extra charge or some way to fit it into
their cost structure to accommodate the new technology. That is
correct.
Mr. Burr. From a policy standpoint, if we were to pass a
law that said you can never use the new technology until there
is a replacement for the new technology and then you can use
that technology that was replaced, would we be accused of not
being concerned with the quality of the care supplied to
individuals?
Mr. Holveck. I think you would.
Mr. Burr. Under that scenario, aren't we using antiquated
drugs or devices to supply service?
Mr. Holveck. Well, I think the ability to use new
technology I think is going to suffer in the interim.
Mr. Burr. What is the determining factor based upon? As I
understand it, the FDA determines the safety and efficacy of
the drug or device.
Mr. Holveck. That is correct.
Mr. Burr. What takes 3 years for us to incorporate that
into the Medicare system?
Mr. Holveck. HCFA tracks data and sees what the incremental
cost is that would allow them to shift a cost in the DRG.
Mr. Burr. So their determination is not based upon the
effectiveness or the quality of care? The safety and efficacy
have already been determined.
Mr. Holveck. That is correct. It is the incremental cost
that would change the reimbursement rate.
Mr. Burr. 100 percent cost?
Mr. Holveck. Yes.
Mr. Burr. Thank you. Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Brown?
Mr. Brown. Mr. Holveck, let's talk about costs for a
moment. I visited this week, Monday morning actually, with
Lorain Community Partners Hospital, the result of two hospitals
that have merged, a public hospital and a Catholic hospital
that have merged in the city of Lorain, where I live on Lake
Erie in Ohio, a city of about 75,000 people, high numbers of
low-income residents. This hospital has talked about a lot of
the problems that Ms. Rapp mentioned and that all of you have
mentioned.
One of the problems, one of the largest and most rapid
increases in terms of costs is the cost of drugs. If Medicare
reimbursement would continue to fall there would be pressure on
the drug manufacturers, I assume, to reduce the prices that
they charge hospitals. In your view, do drug manufacturers have
in flexibility in reducing prices to hospitals?
Mr. Holveck. I refer to the fact that I am in biotechnology
and I do not know that I have an insight on classical
pharmaceutical drug development, but I think that from my
vantage point, running a company, it is a very costly
operation. We are 20 years in existence and only went
profitable 2 years ago after $1.5 billion of public funding
went into it.
So when you talk about our abilities or abilities to reduce
costs, I think you have to understand the infrastructure that
we have to pay for up front in order to get that growth and get
those investors to support our research.
So I can speak for only my particular industry, if you
would, biotechnology, or my particular company. I do not know
that there is a lot of latitude certainly in my experience in
terms of just arbitrarily reducing costs of a drug.
Mr. Brown. Miss Roberts, I was struck by some of the
differences between your testimony and the testimony of the
General Accounting Office in the prior panel. You both agree
that many home health care agencies have closed. It has
happened in probably every district represented up here, I
would guess. And you both agree that payments have decreased to
home health agencies since the Balanced Budget Act of 1997.
You also heard the numbers mentioned earlier by the
chairman about the growth but GAO, where you and they parted,
GAO did not find conclusive evidence that seniors' access to
home health services had suffered as a result. That is their
evidence.
Anecdotally perhaps, in one county in my district a fairly
large home health agency closed but others seemed to pick up
the patient load that they had.
What gives here? GAO is saying--help me understand this--
GAO is saying that seniors' access has not been compromised.
You are saying it has.
Ms. Roberts. The number of beneficiaries receiving services
across the country are 15 percent less than they were pre-
balanced budget. Our State is greater than that.
While certainly there has been consolidation of agencies,
which always makes the number of agencies that have actually
closed a moving target because, as you mentioned, agencies come
together and they should have the same degree of capacity, but
what we do know is that agencies do not have the same degree of
reserve.
I talk about just-in-time staffing. We are literally faced
with agencies staffing themselves to the bare bones. As such,
when unexpected increases in volume or patients needing greater
than the average degree of services are presented, they are, in
fact, not accepted by the organization. They literally do not
have the staff or the resources to provide that care.
We in the State of Rhode Island are tracking how many extra
days people are staying in hospitals or long-term care
facilities because they cannot get access to home care
services. The cost-benefits seem very obvious but, by the same
token, we have not been able to successfully make change on
this policy.
Mr. Brown. The 15 percent figure I would like to explore
now. GAO surely has access to that figure. Why would they claim
that seniors' access to home health services has not suffered?
Ms. Roberts. I think one of the ongoing issues which has
been discussed numerous times throughout today is data, and
what I am talking about is real-time data, real stories that
are happening in our communities. I think as HCFA presents
their data, the information they present is consistently dated.
Report after report that they cite goes back to 1998 when in
many instances we were just beginning to feel the first impact
of all of this.
So I think there is a difference from being in the
community, being in a real-life situation versus going on old
information.
Mr. Brown. One last question. So what happens to those 15
percent that you say are underserved? Do they stay in hospitals
a day longer, a week longer? Are they home with no assistance?
Do they have to call on neighbors and friends and relatives
that may or may not exist in each specific case? Do they get
sicker and die sooner? What has happened to them?
Ms. Roberts. I do not think there is any one single thing
that happens to all those individuals. I certainly can provide
information very specific from our own State. The people are
staying in hospitals, staying in long-term care facilities.
They are waiting several days at home without care. That is
very apparent.
Their general condition, I would suggest, would deteriorate
as they wait. I do not know that I could give you any more
specifics, though, in terms of what the outcomes are.
Mr. Brown. Are you willing to claim that because they stay
in hospitals longer, because they get sicker and need more
Medicare services separate from home care, particularly those
two things, do you claim that it costs Medicare more money in
the end to do this?
Ms. Roberts. Absolutely.
Mr. Brown. Do you have evidence of that, other than that
might follow some logic?
Ms. Roberts. I think it is very simple. If you look at what
the daily hospital rate is, for example, an average rate in the
State of Rhode Island is $700 a day. If, in fact, someone could
go home and have a home health visit at less than $85 a day, it
seems to be evident that, in fact, that----
Mr. Brown. If you want to play those numbers though, when
you look at the incredibly rapid growth of home care, as the
chairman pointed out in his statement earlier, and the larger
and larger percentage of the Medicare budget that home care has
taken, has used, has consumed, and, at the same time, you look
at the growth in hospital costs, if home care had not grown so
fast, hospital costs would have even gone more through the
roof, and nursing home costs?
Ms. Roberts. Well, certainly some people would draw those
conclusions.
Mr. Brown. Would you?
Ms. Roberts. I think there is no question that prior to the
balanced budget there did need to be some changes to many of
the Medicare benefits, home health included. There was a
deliberate intention to move patients out of the hospital to
the community setting. In fact, the home care community
responded to that and the industry grew, perhaps somewhat
unchecked--I would not dispute that. But again, there was some
cost-shifting that happened from inpatient care to home care
service.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Bilirakis. Miss Rapp, before I go to Mr. Bryant, were
you asked whether Medigap covers payment for therapy services
once the cap is met?
Ms. Rapp. It does not.
Mr. Bilirakis. It does not. None of the Medigap plans do?
Ms. Rapp. No.
Mr. Bilirakis. Thank you.
Mr. Bryant will inquire.
Mr. Bryant. Thank you.
Mr. Warden, let me open quickly with you. As the president
of what I understand to be a major health care facility, a
hospital there in Detroit, do you have any comments on Ms.
Roberts' question? I know in your statement you made a comment
about home health care perhaps needing more payments. Do you
have a comment on this GAO issue of access?
Mr. Warden. I would only say that in an integrated system
like our organization is, which has home health as an integral
part of what we do, home health is a strategy, very much a
strategy for getting patients out of the hospital and reducing
costs, the overall cost of caring for that patient in the
episode of illness. It really is an expense in our
organization, not a revenue-generator.
So our perspective on home health, even though we have a
huge home health operation, is a little bit different than it
is in a lot of other organizations.
Mr. Bryant. Certainly you view it not as a competitor but
as a group that works together----
Mr. Warden. No, we view it as very much an important part
of the continuum of care. We use outside agencies as well as
our own agency, but we view it as part of a continuum and try
to provide the care at the right place and the right time.
Mr. Bryant. You have testified on behalf of a very large
urban hospital but are you aware of Michigan having rural
hospitals that, because of the BBA, are facing extinction?
Mr. Warden. Yes.
Mr. Bryant. In essence, the same problem only multiplied
greatly because of----
Mr. Warden. Many of them are the sole provider in their
community. I think one of the reasons I used the example is I
think the problems for rural hospitals are equally as important
or maybe more important in some cases than the challenges that
we are facing in urban teaching hospitals.
Mr. Bryant. Now that you mention urban teaching hospitals,
my other question to you was I am not sure that has been
discussed a great deal today but again I had people come up
yesterday and talk to me about how important that was and how
we must ensure that more than adequate funding is there for our
teaching hospitals and your institution is a teaching hospital?
Mr. Warden. Yes, a very big teaching hospital. As a matter
of fact, of the $200 plus million that I described for a 5-year
period, the largest ticket item is indirect medical education.
Mr. Bryant. Dr. Corlin, from the perspective of a
practicing physician, could you comment and on behalf of the
AMA on this teaching hospital issue and the need to fund it?
Mr. Corlin. From the standpoint of the AMA and also our
group is on staff at a major teaching hospital, UCLA, and they
are being terribly impacted. It is multi-factorial.
Part of the problem has been that the teaching hospitals
have come to rely enormously on the money that comes to them
through the Medicare system and directly from other sources for
teaching. In a way, these cut-backs are cuts of their last
source of revenue because unfortunately, and I know this goes
beyond the scope of this hearing but I know that Mr. Warden, I
am sure, will agree with it, unfortunately, the private
insurance companies, the for-profit HMOs and others, do not
contribute their fair share to provide for the graduate medical
education burden.
We clearly need a continuing supply of young, very well
trained and often trained in brand new procedures physicians in
this country. We have come to rely for the costs of that
training, both the direct costs and the indirect costs, which
exceed the direct costs by orders of magnitude, on revenues
that come from patient care increasingly and they are being cut
back left, right and center.
It is my personal belief, without being an administrator in
a teaching setting, and I am not that--it is my personal belief
that cuts of this magnitude will cause substantial reduction in
the availability of graduate medical education positions
because of the inability of hospitals to maintain them.
Mr. Bryant. Thank you, Mr. Chairman.
Before I yield back my nontime, I want to thank the panel
for their patience. I know they have been here all day. Thank
you.
Mr. Bilirakis. Thank you for yielding back your nontime.
Without objection, Mr. Burr has a quick one question.
Mrs. Cubin. Mr. Chairman, I am back. I have two questions.
I will make it very quick and then I will yield the balance of
my time to Mr. Burr.
Mr. Bilirakis. The gentlelady is recognized.
Mrs. Cubin. Dr. Corlin, two things. You stated that Florida
has lost the most money due to the BBA and I absolutely would
expect that to be so because there are more senior citizens
there.
Do you have a per capita figure on that? And if you do not,
maybe you could get one? If not, maybe I can get one.
Mr. Corlin. I do not have a per capita figure. We took the
$3 billion total loss; approximately 9.6 percent of the
Medicare population resides in Florida, and that is how we
arrived at that figure.
With regard to Wyoming, the loss in Wyoming is probably in
the range of between $3 million and $4 million, which is
probably proportionately an enormous amount for the State of
Wyoming.
Mrs. Cubin. That is correct. It truly is.
Now the chairman said that he did not want this hearing to
turn into Medicare Choice, and I do not, either, but I have a
question about the fairness gap that has been discussed. So I
am just going to ask you this one question, Dr. Corlin, if you
do not mind, and then I will yield to Mr. Burr.
Under the Balanced Budget Act, Medicare Plus Choice
payments are no longer based entirely on Medicare fee-for-
service rates and as a result, the health plans say that a few
years from now most Medicare patients will live in areas where
Medicare payments to managed care plans are about $1,000 less
than fee-for-service payments. This is what is being called the
fairness gap.
And saying that Medicare Plus Choice payments should not be
allowed to fall below 91 percent of fee-for-services in any
county, what is your representative reaction to that proposal?
Mr. Corlin. Well, that is an issue which cuts both ways.
The data shows that about a third of the counties in the
country are counties in which the reimbursement to managed care
organizations will exceed the average for those of us who take
care of fee-for-service patients. And I might say in my own
practice, we do both. We have probably 60 or 70 percent managed
care; the balance is fee-for-service. So I do not have a
personal ax to grind.
I am a bit rankled by their statements, particularly given
the fact that many of the for-profit managed care organizations
choose not to contribute to graduate medical education or to
subsidizing uncompensated care for the poor. They do not take
risk, yet they make profit, which in my little educational
background about what capitalism is all about, making profit
without taking risk is a rather unique situation.
And what is more than that, despite the fact that they are
being guaranteed 2 percent increases in reimbursement, many of
them are dropping out of the Medicare program. I would not
consider dropping out of the Medicare program. I consider it an
obligation that I have as a professional, to take care of
anybody who comes into my office.
As of right now, the payment that we get is probably about
50 percent of our billing. If it goes down, it is going to
hurt. But I am not going to stop, like some of the HMOs are
going to stop. If they want to talk about fairness, I am
willing to sit here all day long and talk to them about
fairness gaps.
Let's have one of the CEOs of the biggest 25 HMOs in the
country, whose average income last year was $21 million, let's
have one of those 25 people come here and I am willing to
debate fairness gap with them all day long.
Mrs. Cubin. Thank you.
Mr. Burr. I thank the gentlelady for yielding. I certainly
will not try to determine who can holler the loudest.
Dr. Corlin, let me just go to the heart of one thing that
you mentioned, and that was technology. I would ask you how
many times a day for a physician does a patient who walks in
the door who you are treating ask you about a particular
procedure or a particular medication versus you mentioning it?
Mr. Corlin. Within the past 2 or 3 years, Mr. Burr, that is
happening increasingly frequently. In my case it is more with
medications than procedures. I can think of treatment for two
things and I think one of them may be the medication Mr.
Holveck was referring to, Enfleximed, which is a new medication
for Crohn's disease, and the other is treatment for hepatitis
C.
An increasing number of patients come into my office for a
consultation with a difficult problem with either of those two
diseases, and after I have finished taking their history and
examining them and I begin to talk about treatment options with
them. The first thing they do is open their folder of
everything that they have pulled down off the web on the
treatment of one of those two conditions and embarrassingly,
sometimes they are ahead of me on it.
So I find that very good. We are seeing a better informed
group of patients. Now all the information is not valid, to be
sure, but a lot of it is and it is a sign, I believe, that the
patients are taking more of--this may sound foolish--but a
personal interest. Since they will have the feeling that they
helped develop the treatment plan, I think they will be more
complaint with the treatment. With a chronic disease such as
that, that is a crucial point.
Mr. Burr. Given that there is a significant difference in
where we are on health care based upon all parties who have an
opportunity to testify, just one closing comment.
It seems irrational a lot of times until you realize that
we are in a system where the two ends of the spectrum are like
this. Every day at the NIH somebody wakes up, goes to work with
one thing in mind: How can I take all the discoveries that were
made yesterday and put them on the Internet so every researcher
in the world can start at that point with that day's work?
And at the FDA somebody wakes up every day and goes to work
with one thought in mind: How can I make sure that no
breakthrough from yesterday ever gets on the Internet until we
have approved the safety and efficacy? Those are the two
different ends of the spectrum and I think that tells you how
we can have so many different policy debates as it relates to
health care, as well.
I thank the chairman. I also thank this panel for lasting
out the other members of the committee.
Mr. Bilirakis. Yes, I certainly endorse that. It is always
terrible when you are the last, I feel, but you have done a
terrific job and we appreciate it very much. You have been very
helpful and honestly, we are going to do the best we possibly
can. Thank you very much.
Again you will respond to written questions.
[Whereupon, at 3:55 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
American Medical Group Association
September 14, 1999
Chairman Michael Bilirakis
Subcommittee on Health and Environment
2125 Rayburn
Washington, DC 20515
Dear Chairman Bilirakis: The American Medical Group Association
represents approximately 45,000 physicians in more than 250 medical
groups from across 40 states. AMGA members are among the largest and
most prestigious medical groups in the country and include such
renowned organizations as the Mayo Foundation, the Palo Alto Medical
Foundation, the Lahey Clinic, the Henry Ford Health System, the
Cleveland Clinic, and the Permanente Federation, Inc. AMGA's mission is
to shape the health care environment by advancing high quality, cost-
effective, patient-centered and physician-directed health care.
The Balanced Budget Act of 1997 (BBA) was the most significant
reform of the Medicare program since its inception in 1965. The BBA
encompasses over 300 changes that have had, and continue to have,
significant implications and consequences for medical groups and the
patients we serve. Multi-specialty medical groups are unique in that
are comprehensively involved in all aspects of health care delivery
affected by the Balanced Budget Act: physician services, inpatient and
outpatient hospital care, Medicare+Choice health plans, skilled nursing
facilities, teaching hospitals, and home health care. Consequently,
multi-specialty groups have sustained, and continue to sustain,
dramatic revenue reductions which interfere with capital budgeting and
patient care.
AMGA understands the need to eliminate unnecessary and wasteful
services and inefficiencies. However, the reimbursement reductions
imposed in BBA '97 are having a significant negative impact on the
ability of medical group practices to continue to deliver quality care
to beneficiaries and are threatening the financial viability of many
groups. AMGA members are struggling to make up for the shortfalls
caused by the BBA, yet, rather than compromise the quality of services
they provide, groups are finding it necessary to cut back on beneficial
services and uncompensated care. For your review, we have attached a
few real examples of the estimated net revenue impact of specific items
in the BBA 97.
It is our understanding that this fall Congress is likely to
consider a package that would provide BBA relief to providers who have
been severely hampered in their ability to serve Medicare patients.
Medical groups need both administrative and legislative remedies if
they are going to continue delivering quality care. Relief from the
Balanced Budget Act should include:
<bullet> Relief from reductions for teaching hospitals and academic
medical centers. BBA limits payments for IME, interfering with
teaching hospitals' ability to provide quality care to the
poorest and sickest individuals. AMGA supports legislation
introduced by Rep. Charles Rangel (H.R. 1785) and Senators
Moynihan and Kerrey (S. 1023) that would freeze IME payments at
current levels and prevent future scheduled BBA cuts.
<bullet> Repeal the patient transfer provision. Under the expanded
transfer definition, the government pays less for the shorter
stay but does not increase payment for longer-stay patients.
AMGA supports legislation proposed by Senator Grassley (S. 37)
and Rep. Jim Nussle (H.R. 405) which would repeal this
provision.
<bullet> Fix the way Medicare pays Medicare+Choice plans by:
<bullet> Requiring HCFA to implement the risk adjustment process on
a budget neutral basis. The ``risk adjustment'' process was
intended to distribute funds based on the health status of
M+C enrollees, however, HCFA has proposed a model that
would impose deep spending cuts in the M+C program. AMGA
supports H.R. 2419, the ``Medicare+Choice Risk Adjustment
Amendments of 1999,'' introduced by Congressman Michael
Bilirakis.
<bullet> Speed up implementation of the risk adjustment mechanism,
permitted that it uses a reliable database that takes into
account the beneficiary' heath status and medical costs.
Many of our medical groups care for a disproportionate
number of the sicker Medicare population and have faced a
sharp reduction in Medicare payments.
<bullet> Require HCFA to modify the Sustainable Growth Rate (SGR)
expenditure target. Currently, there are significant flaws in
the formula that is used to calculate thie annual payment
update for physician services. Absent significant modifications
in the SGR, physicians face payment constraints that are far
more severe than Congress intended.
<bullet> Delay implementation of the prospective payment system for
outpatient departments so that HCFA can address and amend the
proposed rule. The proposed rule has numerous problems and
would severely impact medical groups across the country. As
proposed, the rule does not recognize that integrated systems
have moved many services to ambulatory sites. We support
legislation introduced by Senator Jeffords (S. 1263) and Rep.
Mark Foley (H.R. 2441) that would provide for a transition
period and limit payments reductions over three years.
<bullet> Restore the budget neutrality on the new prospective payment
system's reimbursement methodology. The 5.7% across the board
reduction in payment to outpatient departments imposes an $850
million per year reduction in payment to hospitals that was not
intended by Congress in the BBA. Congress intended that
payments to hospitals should remain budget neutral under the
new PPS system. We support the steps taken by Reps. Johnson and
Cardin, and Senators Cochran, Kerry, and Rockefeller urging
HCFA to restore the budget neutrality.
In addition, AMGA commends President Clinton for taking the steps
to introduce a Medicare reform proposal that seeks to modernize the
program, introduce private sector innovations, and help seniors pay for
prescription drugs. In particular, we strongly support the creation of
a demonstration project of bonus payments for physician group practices
who reduce excessive use of services and demonstrate positive medical
outcomes for their patients. Based on our members' experience, medical
group practices are leading the way to cost-effective, high quality
health care through integrated financing and delivery of medical
services. A shared commitment and an underlying patient care mission by
all involved have produced superior results in quality health care
service and satisfaction for both patients and providers. Through
organized delivery systems, providers save time, money, and resources,
and improve patient care.
At the same time, we are disappointed that the President's proposal
continues the pattern of cutting payments to providers as a way to
maintain Medicare solvency. President Clinton's Medicare reform would
cost hospitals and health plans $70 billion over 10 years. The
potential for additional Medicare cuts to medical groups will be
disastrous because, as integrated practices, they carry the burden of
the full scope of reductions.
While we recognize the need to eliminate inefficiencies and
wasteful services, the Federal government cannot finance and expand the
Medicare system by cutting provider reimbursements. The President's
proposed reductions come on the heels of Medicare spending reductions
contained in the Balanced Budget Act of 1997, and will reduce our
ability to provide quality services that the elderly depend on. While
the President's establishment of a $7.5 billion provider set-aside fund
appears to recognize that the BBA 97 reductions were too harsh, this
funding level is insufficient to address reimbursement inadequacies and
does little to ensure that Medicare beneficiaries will continue to have
stable access to health care providers. More importantly, the $7.5
billion would result in battles among the provider community to
determine who is most worthy of relief.
Rather than implement further reductions at the expense of health
care delivery, Congress needs to do two things: First, Congress needs
to fix the unintended consequences of the Balanced Budget Act. This
will ensure that Medicare beneficiaries will continue to receive
quality and cost-effective care from providers and medical groups.
Second, if solvency of the Medicare program is to be sustained,
Congress needs to fundamentally restructure and modernize the Medicare
program. Such a system should be based on the principles of patient
choice, competition, innovation, a defined role for the government, and
should adopt marketplace innovations. Continuing to reduce provider
reimbursements as a part of reform is not a viable option.
We appreciate your taking our views into consideration. We look
forward to working with Congress on Medicare reform and adjustments to
the Balanced Budget Act of 1997. Please do not hesitate to contact AMGA
if you have any questions or concerns.
Sincerely,
Donald W. Fisher, Ph.D., CAE
Chief Executive Officer
Cc: Majority Leader Trent Lott, Minority Leader Tom Daschle, Speaker
Dennis Hastert, Minority Leader Dick Gephardt, Majority Leader Dick
Armey, Senator William V. Roth, Jr., Senator Daniel Patrick Moynihan,
Congressman Tom Bliley, Congressman Bill Archer, Congressman Bill
Thomas, Congressman Charles Rangel, Congressman Fortney Pete Stark,
Senate Finance Committee, Commerce Committee, Ways and Means Committee,
Administrator Nancy-Ann DeParle, Mr. Christopher Jennings, and Dr.
Robert Berenson.
Mayo Foundation--Rochester, Jacksonville, and Scottsdale
(in millions of dollars)
----------------------------------------------------------------------------------------------------------------
BBA Reductions 1998 1999 2000 2001 2002 2003 Total
----------------------------------------------------------------------------------------------------------------
Reduction to IME payment Rate.................... 6.4 13.9 20.5 26.5 28.5 30.7 120.1
PPS-exempt unit TEFRA rates...................... -- 1.0 1.0 0.9 0.8 0.7 4.3
Reduction to Federal capital Payments............ 5.1 5.6 6.0 6.5 6.7 6.8 31.7
Transfer DRGs.................................... 0.6 2.5 2.5 2.5 2.5 2.5 12.6
Outpatient PPS (assume 5% reduction)............. 0.3 0.7 0.7 0.7 0.7 0.7 3.5
Outpatient formula-driven overpayments........... 1.1 1.7 1.8 1.9 2.0 2.1 9.4
Eliminate IME payment on outliers................ 3.4 3.8 3.6 3.6 3.8 4.1 19.0
SNF prospective payment.......................... -- 3.0 6.0 9.0 12.0 12.0 42.0
Reduction to bad debts........................... -- 0.1 0.1 0.1 0.1 0.1 0.4
HHA reduction to limits and PPS0.5............... 0.5 0.5 0.5 0.5 0.5 0.5 2.5
Medicare Part B physician fee schedule........... -- 3.0 6.0 9.0 12.0 12.0 42.0
Total Reductions................................. 18.3 35.6 45.5 54.9 60.4 63.0 259.3
----------------------------------------------------------------------------------------------------------------
Henry Ford Health System--Detroit, MI
(in millions of dollars)
----------------------------------------------------------------------------------------------------------------
BBA Reductions 1998 1999 2000 2001 2002 Total
----------------------------------------------------------------------------------------------------------------
PPS-Hospital Payment Update......................... 5.2 8.9 12.5 14.7 17.0 58.3
IME Adjustments..................................... 3.2 5.7 8.2 10.7 10.7 38.5
Capital Payment for PPS Hospitals................... 3.3 3.3 3.3 3.3 3.3 16.5
Transfer DRG Provision.............................. -- 3.1 3.1 3.1 3.1 12.4
Disproportionate Share Payments..................... 0.1 0.2 0.2 0.3 0.4 1.2
Bad Debt Payments................................... 0.5 0.8 0.9 0.9 0.9 4.0
Formula Driver Overpayments......................... 2.9 2.9 2.9 2.9 2.9 14.5
Outpatient PPS...................................... -- -- 4.8 9.6 9.6 24.0
Physicians Single Conversion Factor................. 1.0 1.0 1.0 1.0 1.0 5.0
Physician Practice Expense RVUs..................... -- 0.6 1.0 1.4 1.8 4.8
Home Health Interim Payment System.................. 1.0 -- -- -- -- 1.0
Sustainable Growth.................................. -- 1.2 1.7 1.2 1.2 5.3
HMO 2% Cap.......................................... 2.2 4.6 TBD TBD TBD 6.8+
Risk Adjusting Scheme............................... N/A N/A TBD TBD TBD TBD
User Fees........................................... 525,000 620,000 651,000 684,000 718,000 3.2
Total Reduction..................................... 19.9 32.9 39.3 49.8 52.6 195.5+
----------------------------------------------------------------------------------------------------------------
Lahey Clinic--Burlington, MA
----------------------------------------------------------------------------------------------------------------
BBA Cuts 1998 1999 2000 2001 2002 Total
----------------------------------------------------------------------------------------------------------------
PPS Hospital Updates.............. 1,295,081 2,466,203 3,379,178 3,964,511 4,578,043 15,683,016
Formula Driven Overpayment........ 850,000 850,000 850,000 850,000 850,000 4,250,000
IME............................... 1,322,000 2,555,000 3,266,000 4,199,000 4,199,000 15,241,000
IME Managed Care.................. 562,500 1,500,000 2,200,000 2,900,000 3,480,000 10,642,500
Transfer Policy................... -- 1,000,000 1,000,000 1,000,000 1,000,000 4,000,000
APC............................... -- -- 1,00,000 2,000,000 2,000,000 5,000,000
Single Conversion Factor.......... 750,000 1,000,000 1,000,000 1,000,000 1,000,000 4,750,000
Resource-Based Practice Expense -- 300,000 700,000 1,100,000 1,500,000 3,600,000
RVU..............................
Total Reduction................... 3,654,581 6,371,203 8,995,178 11,213,511 11,647,043 41,881,516
----------------------------------------------------------------------------------------------------------------
______
American Medical Group Association
July 30, 1999
Health Care Financing Administration
Department of Health and Human Services
Room 309-G Hubert Humphrey Building
200 Independence Avenue, SW
Washington, DC 20201
Re: HCFA-1005-P
On behalf of the American Medical Group Association, I appreciate
the opportunity to provide comments on the proposed rule that
establishes a prospective payment (PPS) system for Medicare outpatient
services, published September 8, 1998, in the Federal Register.
AMGA represents over 250 physician-owned and managed group
practices and multi-specialty medical groups. In direct response to
market forces, physicians are increasingly joining or forming larger
multi-specialty groups, and integrating with other health care entities
such as hospitals, ambulatory care facilities, and insurers. The goal
of group practices is to create seamless delivery systems to offer the
full continuum of care under the same corporate umbrella. Many of our
group practices are highly integrated health care delivery systems,
with multiple facilities, programs and locations.
We are very concerned that the proposed rule does not recognize an
integrated delivery system organizational model in which there are
multiple parts delivering medical care to a population. The rule
appears to be modeled for smaller, less-integrated entities that are
organized around one or two free-standing hospitals with ambulatory
services directly flowing from the activities of a single hospital and
private practice physicians. The proposed rule does not take into
account the kinds of organizations structures that are common to larger
delivery systems, such as the Palo Alto Medical Foundation, the
Cleveland Clinic Foundation, and the Henry Ford Health System. We are
concerned that the proposed rule, as drafted, will limit beneficial
integration, will lead to unfair payment, and will adversely impact
beneficiary access to service and quality of care.
In a large integrated delivery system specialized administrative
and clinical resources such as in-patient hospital, ambulatory care,
home health care, durable medical equipment, etc. are organized under
one overall umbrella, to provide seamless medical care to a community
population. Under the Proposed Rule, the ``main provider'' which is
likely to be a hospital, is required to exercise ultimate, total
control over all the other parts of a system of care. However, in an
integrated delivery system, it is not always the hospital which
exercises such control but rather the system as a whole. The concept of
one hospital with a discrete network of ambulatory sites does not hold
in the case of larger systems. The history and culture of the physician
group practices is to create coordination and collaboration across
sites which results in a further blurring of lines between specialty
and primary care, ambulatory and inpatient care. The result is a health
care system that does not mimic the traditional patterns.
A discussion of some of our main concerns with the proposed rule
follows:
Line of Demarcation Between Procedures Covered Only in Inpatient
Settings and Those Covered in Outpatient Departments and
Ambulatory Surgery Centers
We believe the attempt by HCFA to create a list of exclusively
inpatient procedures is in error and should be withdrawn. Medicine is
evolving too rapidly for such a list to ever be current. In a cursory
review, we identified over 30 procedure codes that are on the
inpatient-only list that currently are performed in both settings,
depending on patient condition. At best, the list would have the effect
of freezing in place inpatient procedures when they may be safely
accomplished in the outpatient department or ambulatory surgery center.
At worst, it would require care now safely provided in outpatient
departments to be returned to the inpatient setting.
This would have the unintended effect of adding costs unnecessarily
to the Medicare Program. What is needed is not a rule that prescribes
what may or may not be done in inpatient settings, but rather physician
discretion, based on the patient's condition, to determine what site of
care is most appropriate. Rather than attempting to list all inpatient
procedures, patients and the Medicare Program would be better served by
establishing some generic criteria related to patient care that would
assure that care is safely provided in the appropriate setting. This
approach would allow for the needed flexibility for the program to
adapt to changing medical practice.
Treatment of Academic Health Centers
We support an education adjustment to payments in hospital
outpatient settings. As care is increasingly provided in hospital
outpatient departments, so too has residency training with its
attendant costs. Your own data show that care costs are more expensive
for hospital outpatient departments of academic medical centers. It
only makes sense that you honor what your own data analysis has
demonstrated.
Definitions and Criteria for Hospital Based Entities
While we understand and support the intent of your effort, we
believe the proposed rule is far too administratively complex and
detailed. The rules would have the effect of forcing many differing
relationships, while provider based, into a single mold, which simply
is in conflict with the many real world variations. It is not necessary
to have such detailed regulatory requirements in order to define a
provider based entity. Below is an itemization of our concerns.
General Reporting Requirements to HCFA--In any acquisition or any
material change in status related to provider based, the main provider
is required to report to HCFA to obtain approval of provider based
status. The main provider would be required to provide ``. . . all
information needed for a determination . . .'' A careful reading of the
details of this proposed rule find that the amount of information
necessary could be exhaustive, depending on the level of ``proof''
required by the HCFA regional office. This will add a heavy burden to a
system that already functions poorly. There are over 10,000 sites which
providers believe should be treated as provider-based and which would
require review and approval under HCFA's proposal. This number could be
much greater depending on HCFA's interpretation of the scope of the
rule.
Furthermore, there is no requirement related to timely response by
HCFA. If a provider is kept waiting months for approval of a site and
is barred from billing until such approval is granted, HCFA is
violating the statutory requirement to make timely interim payments. It
is not fair to bar providers from billing and receiving payments while
waiting for their requests to be approved.
AMGA supports a requirement for a deadline for agency response
after which, if not met, the affected parties can move ahead with a
presumption of provider based status. Second, we support the creation
of a basic form that specifies the types of documentation a provider
needs to submit to obtain prior approval so that the provider is not
left in the position of having to guess at what is needed and what will
be satisfactory. The final rule needs to be extremely clear on
precisely what documentation a provider needs to submit to obtain
provider-based status for a site. Last, we believe that these
provisions should not go into effect until the Agency is prepared to
handle the requests. Otherwise, very quickly a significant backlog will
result
Ownership and Control--We believe the ownership and control
requirement of 100% ownership by the provider is unduly restrictive.
Majority ownership is far more reasonable and relevant to business
relationships and still has main provider control.
Administration and Reporting
We believe the requirement that ``. . . reporting relationship to
the main provider that is characterized by the same frequency,
intensity and level of accountability that exists in the relationship
between the main provider and one of its departments . . .'' is
unreasonable in that, depending on the particular entity in question,
differing levels of reporting are more appropriate. Some department
will receive greater attention because of the nature of the services
furnished in them or because of problems or changes that arise. The
degree of interrelationship on the part of the hospital outpatient
department is by definition bound to be more extensive than it will be
for a SNF or home health agency or ambulatory surgery center. To
require the same detailed reporting level for entities which function
in substantially different ways is too restrictive. Again, it gets into
``level of proof'' arguments which can be subjective and take up an
enormous amount of time in attempting to show equivalence. If HCFA
maintains some specificity in the final rule, the language should be
modified to state that communications between the site and the main
provider should be of the same frequency and nature as between the main
provider's administration and other similarly situated departments.
We agree with the integration of certain basic functions, such as
billing, records, human resources payroll, employee benefit packages,
salary structure and purchasing. The integration of these functions,
coupled with a simplified reporting requirement should suffice in
demonstrating the provider-based relationship. A main provider and a
site seeking provider-based status can be administratively integrated
yet still maintain its own billing or conduct a number of
administrative functions from the site.
Clinical Integration
The clinical integration requirement is too prescriptive. We agree
with the general mandate, but disagree with the amount of specificity
you have. It does not allow for variation in arrangements in large,
complex organizations. First of all, the proposed rule requires the
site's medical director to have a ``day-to-day'' reporting relationship
with the medical director of the main provider. However, there is often
no need for daily contact and often the medical director works part-
time or only a few hours a day. In addition, there is a wide variety in
titles and management structure from provider to provider. Second, we
do not agree with the decision that the main provider must have an
inpatient service in order to monitor and control an outpatient
service. As medical science advances and providers become increasingly
aware of how to treat patients more efficiently, more services are
moving to the outpatient setting, leading to the elimination of the
inpatient service. This practice is leading to better care and lower
costs. Further, in your language you have a lot of ``. . . we would
expect to see . . .'' Either it is a requirement or not.
The ``same campus'' requirement is archaic. In today's world,
providers sprawl across large geographic regions and are not single
site. If one meets the other integration requirements, the special
requirements for those not on campus are not necessary.
Specific Ambulatory Patient Classification Groups
We are aware that you have received many comments from many
specialties and associations concerning particular concerns with the
proposed groupings and/or payment adequacy. Below are some particular
areas where we have special concern.
APCs
In defense of adopting the APC system, HCFA argues that development
of individual payment rates would imply a level of precision that is
inappropriate to the quality of available data. While the data on the
costs of hospital outpatient services is imperfect, using the APC
structure on data of questionable accuracy is not an appropriate
solution. AMGA believes that using unreliable and questionable data as
the basis of the APC system would simply introduce additional sources
of error in the payment system.
If HCFA is committed to using the APCs as the basis of payment for
HOPD services, significant restructuring to create more homogeneous
groupings will be necessary. Under the proposed rule, many HOPD
services have not been assigned to an appropriate APC Group and thus
the associated payment rate, which is based on the median costs of all
procedures in the APC, is skewed and does not reflect the true costs of
the services in that APC. Careful construction of the APCs is critical
to the validity of HCFA's proposed payment system. Currently, APCs
include very heterogeneous service groups that have payment rates that
do not reimburse appropriately for many of the services they include.
We strongly urge HCFA to construct APCs so that they are consistent in
terms of the packaged services typically required for each procedure.
APCs should be similarly homogeneous with respect to operating and
recovery room use, observation care, specialized medical and surgical
supplies and blood products.
Even if HCFA succeeds in substantially improving the APCs, some
procedures should be individually priced. Under the proposed rule, HCFA
packages the costs of Medicare-covered pharmaceuticals in APC groups.
AMGA is concerned that packaging all Medicare-covered drugs and
biologicals in APC's may jeopardize patient access to innovative and
important therapies. However, these APCs are especially undervalued and
do not even come close to adequate reimbursement for today's therapies,
especially their drug components. Given a substantial disparity between
reimbursement and the cost of providing new drugs and therapies,
hospitals may opt for less expensive, but less effective treatments to
mitigate financial losses. Without adequate means for reimbursing the
cost of certain drugs and therapies and an inability to keep pace with
the rapid advances in this field, HCFA may unintentionally discourage
use of some highly beneficial therapies. AMGA urges HCFA to continue to
make separate payments for all Medicare-covered drugs because payment
rates are often too low and do not take into account the higher costs
of many newer drugs.
Anti-dumping requirements
AMGA opposes the new requirement that hospital outpatient
departments, on the main premises of the hospital, comply with the
anti-dumping rules. No matter how fully integrated with a hospital an
outpatient department may be, it does not provide the full range of
services as a hospital, including emergency services. These facilities
may be specialized clinics providing limited services, and may be
several miles away from its parent hospital.
Physician Supervision
This proposal ignores that some allied health practitioners are
permitted by HCFA to practice without physician supervision such as
nurse practitioners, physician assistants, etc. HCFA's regulations
clearly extend Medicare Part B coverage to these services. It doesn't
make sense to impose greater supervision requirements in a provider-
based setting than for the same services in other settings. This must
be corrected in the final rule. In addition, most partial
hospitalization services are furnished by clinical social workers or
other licensed personnel who are working well within the scope of their
licenses. Here again, the final rule should not require direct
physician supervision.
Conclusion
We appreciate the work the Agency has undertaken in an attempt to
develop the Ambulatory Patient Classification system for hospital
outpatient department and ambulatory surgery center payments. It is a
difficult task and the NPRM has served as a useful platform for
analysis and debate. However, the proposal is far from a completed
product and needs still more analysis prior to implementation. It is
for this reason that we recommend that it be re-proposed rather than
moving to a final rule, or a final rule with comment. Either of the
latter two alternatives will leave us with a badly distorted payment
system with unknown consequences for both beneficiaries and providers.
Sincerely,
Donald W. Fisher, Ph.D.
Chief Executive Officer
______
Prepared Statement of the American Academy of Family Physicians
The 88,000 members of the American Academy of Family Physicians
would like to provide the following comments on the impact of the
Balanced Budget Act of 1997 (BBA) on graduate medical education.
Included in this statement are the specific problems with the Act and
the Academy's recommendations for solving them. All of the relief the
Academy seeks can be achieved in the provisions of the Graduate Medical
Education Technical Amendments Act of 1998 (H.R. 1222), and we urge you
to include this bill in any legislation you craft to remedy problems
with the BBA. We are pleased that the House Commerce Subcommittee on
Health is reviewing how this significant law is impacting cost savings
and patient care.
background
The Academy has had a long-standing interest in graduate medical
education because of our commitment to a rational physician workforce
policy that both discourages an oversupply of physicians, and
encourages increased training of those physician specialties in short
supply. Our organization has produced and updated regularly a number of
policies on physician workforce issues, as well as specific GME
recommendations. Recently, the Academy undertook a year long process to
revise our physician workforce recommendations with the goal of
supporting efforts to ensure that all Americans have access to primary
care services; that the needs of underserved rural and urban
populations are met; and that evolving managed care delivery systems
have an adequate supply of an appropriate mix of primary care
physicians.
In addition, the Academy has long been concerned that graduate
medical education in the US is currently financed by the Medicare
program without sufficient incentives to reduce the oversupply of
physicians or ensure appropriate distribution of physicians by
geographic location and specialty. Although there are several harmful
consequences as the result of this disconnect between Medicare policy
and physician workforce needs, one of our primary concerns is the
imbalance between primary care and subspecialist physicians in this
country.
changes necessary as a result of the balanced budget act of 1997
In general, the Balanced Budget Act of 1997 contains several
graduate medical education policies advocated by the Academy for years.
The Academy supports a limit on the number of medical residents, and we
also support GME payments for training in non-hospital sites and the
carve-out of payments to teaching hospitals from the average adjusted
per capita cost. However, we have supported these policies in
conjunction with specific protections for needed primary care programs.
Such protections are absent from the law and regulations. In fact, the
only section of the Act that includes an acknowledgment of the
importance of primary care training programs is the demonstration
project, which allows incentive payments for voluntary reduction in
residents. Unfortunately, the Act has had serious consequences for
family medicine programs.
Some of the harmful effects of the Act are demonstrated in the
following results of a survey of family medicine training programs,
which was conducted by the Organizations of Academic Family Medicine.
<bullet> 56 percent of family medicine programs responding that were in
the process of developing new rural training sites have
indicated they will either not implement those plans, or are
unsure of their sponsoring institutions' continued support.
<bullet> 21 percent of family medicine programs responding report
planning to decrease residency slots in the immediate future.
<bullet> The majority of those family medicine programs that are
planning to decrease residency slots are the sole residency
program in a teaching hospital. (This means these family
practice programs have no alternative way of achieving growth
such as decreasing other specialty slots within the 1996 cap on
positions.)
<bullet> Due to significant training out of the hospital, most family
medicine residency respondents did not have their full
residency positions captured in the 1996 cost reports upon
which the reimbursement is based, causing a loss of Medicare
revenue compared to most other specialties that train almost
exclusively in the hospital.
Following are the Academy's four recommendations for solving these
problems. These provisions are included in H.R. 1222.
Supporting Residency Training in Ambulatory Sites
H.R. 1222 would treat all hospitals sponsoring residency programs
fairly--not just those that were training residents in the hospital in
1996--by including those residents who were training in the community
in the cap. As you know, the BBA capped the number of residency slots
in an institution, a number that determines the amount of indirect
graduate medical education funding (IME) the institution receives.
Without ``resetting'' the caps, the residency programs that were
training residents in the community in 1996 will have their Medicare
IME cap lowered and receive less funding in subsequent years.
Ironically, while one intent of the Act was to encourage ambulatory
training by providing IME support after 1998, the Act inadvertently did
not account for those residents who were already training outside of
the institution at the time, such as family medicine residents. The
Academy supports Medicare funding for all residents training outside of
the hospital.
Providing Limited Growth to Single Residency Program Hospitals
H.R. 1222 would allow hospitals that sponsor only one residency
program to increase their resident count by one per year, up to a
maximum of three, to meet community needs for primary care physicians.
Under the BBA, a hospital with several residency programs can move
positions from less popular subspecialty programs to high-demand
primary care programs, such as family medicine, to meet the residency
caps. By contrast, a hospital with only one program does not have this
option. Approximately 300 hospitals sponsor only one residency program;
191 are in family medicine.
Supporting Residency Programs Under Development
H.R. 1222 bill would allow a few, new, family medicine residency
programs that have long been under development to be established by
extending the cut-off date for new residencies. Specifically, any
residency programs that were approved after January 1, 1995, and before
September 30, 1999, could be set up. The BBA set August 5, 1997, as the
cut-off date for new residencies, which had a disproportionate,
negative effect on family medicine residency programs because of the
growth in these training programs.
Meeting the Needs of Rural Communities
H.R. 1222 would permit the establishment of new, rural training
programs by allowing urban residency programs sponsoring these programs
to receive an exception to the caps (for the rural programs only.) The
BBA capped all residency programs, but strongly supported the
establishment of rural programs. This provision clarifies the intent of
the Act by supporting the growth of rural programs.
conclusion
The American Academy of Family Physicians appreciates the
opportunity to inform your deliberations on the impact of the BBA on
graduate medical education system. Thank you for the opportunity to
provide these comments.
______
Prepared Statement of the American Heart Association
The American Heart Association urges the House Commerce Committee's
Subcommittee on Health and Environment to carefully consider the impact
of the $1500 Medicare outpatient rehabilitation services cap on
patients' ability to receive the services needed after a heart attack
or stroke. The Association appreciates the Subcommittee's efforts to
review the impact of the 1997 Balanced Budget Act on patient care and
implores the Subcommittee to review the BBA provision establishing the
cap and the negative impact it has had on patient care.
Cardiac rehabilitation and stroke rehabilitation are fundamental to
the recovery of many heart disease and stroke patients. Yet, the
arbitrary $1500 Medicare cap on outpatient rehabilitation services
hinders patients' ability to receive comprehensive care post-incident.
In addition, the cap raises severe concerns for patients who suffer
multiple cardiovascular events in a single year.
Often cardiovascular events--stroke in particular--require
extensive rehabilitative care including speech, physical and
occupational therapy. This care can dramatically improve patients'
ability to recover from a heart attack or stroke and can improve
patients' chances of avoiding a future incident. As a result, access to
proper and appropriate rehabilitative care after a heart attack or
stroke is not only sound medical policy, it is also sound fiscal
policy.
The 4.2 million patients, families, caregivers, healthcare
professionals and concerned citizens of the American Heart Association
ask the Subcommittee to lift the arbitrary cap established by the BBA
and give heart disease and stroke patients access to the care and
benefits necessary for their recovery.
Thank you for your consideration of our views. We appreciate the
opportunity to share our concerns and look forward to working with the
Subcommittee to remedy the situation that has arisen as a result of the
rehabilitation cap.
______
Department of Health & Human Services
Health Care Financing Administration
November 16, 1999
The Honorable Michael Bilirakis, Chairman
House Commerce Committee
Subcommittee on Health and Environment
2125 Rayburn House Office Building
Washington, DC 20515
Dear Chairman Bilirakis: Thank you for the opportunity to testify
before the House Commerce Committee, Subcommittee on Health and
Environment on September 15, 1999, regarding the Balanced Budget Act of
1997 and the impact on cost savings and patient care.
Attached is a copy of the edited transcript, along with answers for
the record, and responses to additional questions submitted after the
hearing.
If you need any additional information, please do not hesitate to
contact me. It is essential that we work together for meaningful
reform. Your continued interest and support are crucial to the success
of the Medicare program and I look forward to continuing to work with
you as we address all of these concerns.
Sincerely,
Michael M. Hash
Deputy Administrator
Attachments
cc: The Honorable Thomas J. Bliley, Jr., Committee Chairman
The Honorable Sherrod Brown, Subcommittee Ranking Member
The Honorable Ted Strickland
Questions for the Record Submitted by Chairman Bliley
Question 1. In their testimony, MedPAC says that ``there is no
systematic evidence to date that beneficiaries' access to care has been
impaired'' by the BBA? Can you comment on that statement and discuss
the access issues across various sites of services, including
hospitals, home health agencies, skilled nursing facilities, physical
and speech therapists, etc.?
Answer 1. Thus far, our monitoring reveals evidence of isolated but
significant problems. Although our analysis is not yet complete, we are
concerned that some beneficiaries are not getting necessary care. For
example, the BBA imposed $1500 caps on the amount of outpatient
rehabilitation therapy services that can be reimbursed, except in
hospital outpatient clinics. However, these caps are not based on
severity of illness or care needs, and they appear to be insufficient
to cover necessary care for many beneficiaries. We have several
industry-sponsored analyses from different sources of 1996 claims data
indicating that approximately 12 to 13 percent of therapy patients will
exceed the caps. Beneficiary groups are reporting many instances of
problems with this cap, and we are very concerned about their adverse
impact, particularly on individuals in nursing homes. As mentioned
above, our IG colleagues have agreed to study this problem. We are
providing data to the Medicare Payment Advisory Commission so it can
analyze patterns of therapy service usage. And we will continue to work
with Congress and others to determine what adjustments to the cap
should be made.
We are also concerned that the new prospective payment system for
skilled nursing facilities does not adequately reflect the costs of
non-therapy ancillaries such as drugs for high acuity patients. The HHS
Inspector General (IG) found, in interviews with hospital discharge
planners and nursing home administrators, that less than 1 percent of
nursing home administrators say the prospective payment system is
causing access to care problems. The proportion of beneficiaries
discharged to skilled nursing facilities is unchanged from 1998, and
hospital lengths of stay have not increased. However, about one in five
discharge planners say it takes more time to place Medicare patients in
nursing homes. The IG also found that both nursing home administrators
and hospital discharge planners say nursing facilities are requesting
more information before accepting patients. About half of the nursing
home administrators say they are less likely to accept patients
requiring expensive supplies or services such as ventilators or
expensive medications. About half also say they are more likely to
admit patients who require special rehabilitation services such as
physical therapy following joint replacement surgery. We are therefore
conducting research that will serve as the basis for refinements to the
resource utilization groups that we expect to implement next year. We
expect to have the research completed by the end of the year and to
then develop refinements that we will be able to implement next
October. We believe these changes should be budget neutral. However, we
are continuing to review whether we have additional administrative
authority. We fully expect that we will need to periodically evaluate
the system to ensure that it appropriately reflects changes in both
care practice and the Medicare population.
For home health care, evaluations by the GAO and HHS to date have
not found that BBA changes are causing significant quality or access
problems. However, we have heard reports from beneficiary groups, our
regional offices, and others regarding home health agencies that have
inappropriately denied or curtailed care, and incorrectly told
beneficiaries that they are not eligible for services. We are also
hearing reports from beneficiary advocates and others that some high
cost patients are having trouble finding home health agencies to
provide the care they need. This may result from a misunderstanding of
the new incentives to provide care efficiently, or from efforts to
``cherry pick'' low cost patients and game the system. The CBO
attributes some of the lower health spending to the fact that agencies
are incorrectly treating the new aggregate per beneficiary limit as
though it applies to each individual patient. We have therefore
provided home health agencies with guidance on the new incentives and
their obligation to serve all beneficiaries equitably. We have
instructed our claims processing contractors to work with agencies to
further help them understand how the limits work. And, because home
health beneficiaries are among the most vulnerable, we are continuing
ongoing detailed monitoring of beneficiary access and agency closures.
For hospitals, the hospital industry has submitted data projecting
significant decreases in total Medicare margins. Our actuaries believe
the methodology used to develop these projections understates base year
total margins by approximately 7 percent. And, as the Medicare Payment
Advisory Commission (MedPAC) has noted, Medicare costs per case have
declined for an unprecedented fifth year in a row. Hospitals may be
having financial difficulties because Medicare payments no longer
include enough excess to make up for below-cost contracts with managed
care companies or because of other market issues not directly related
to Medicare payment. We do, however, share MedPAC's concern that many
small rural hospitals appear to be in especially poor financial
condition. We have taken administrative steps that will help many rural
hospitals, and are continuing to monitor this situation closely, as
well.
Question 2. The President, in his Medicare reform plan released in
June, said that he is considering delaying the outpatient volume cap
for several years. Can you indicate whether HCFA will delay the volume
cap?
Answer 2. To help all hospitals with the transition to outpatient
prospective payment, we intend to delay a ``volume control mechanism''
for the first few years of the new payment system. The law requires
Medicare to develop such a mechanism because prospective payment
includes incentives that can lead to unnecessary increases in the
volume of covered services. The proposed prospective payment rule
presented a variety of options for controlling volume and solicited
comments on these options. Delaying their implementation would provide
an adjustment period for providers as they become accustomed to the new
system. We also are considering implementing a threeyear transition to
this new PPS by making budgetneutral adjustments to increase payments
to hospitals that would otherwise receive large payment reductions such
as lowvolume rural and urban hospitals, teaching hospitals, and cancer
hospitals. Without these budgetneutral adjustments, these hospitals
could experience large reductions in payment under the outpatient
prospective payment system. And, to help hospitals under the outpatient
prospective payment system, we included a provision in the proposed
rule to use the same wage index for calculating rates that is used to
calculate inpatient prospective payment rates. This index would take
into account the effect of hospital reclassifications and
redesignations. We sent a letter to you on October 19, discussing our
plans for the final rule in more detail.
Question 3. In GAO's testimony, they indicate that the hospital
industry overstates the impact of the BBA on hospital margins. Can you
comment on that statement?
Answer 3. Industry projections show significant deterioration in
hospital margins. However, our actuaries believe the methodology used
to develop these projections was flawed and understates base year total
margins by approximately 7 percent in the base year. When adjusted for
this error, alternative 2002 projections of total Medicare margins
would range from 2.3 to 9.3 percent. It is important to note that the
most recent MedPAC data show that hospitals' Medicare costs per case
have declined for an unprecedented fifth year in a row, and that
hospitals' average Medicare inpatient margin was a record 17.1 percent
in 1997. So despite slower revenue growth, hospitals' aggregate total
margins have increased steadily. We are, however, concerned about
MedPAC data suggesting that many small rural hospitals appear to be in
especially poor financial condition, and about the combined impact of
all the various BBA payment changes on rural hospitals. The President's
Medicare reform plan includes changes to regulations that would lessen
the impact on these facilities.
Question 4. The Medicare Payment Advisory Commission, the American
Hospital Association, and the American Medical Association do not
support the use of the ambulatory patient classification systems (APCs)
and instead support payment on a service specific fee schedule. Would
you support movement to a payment system that reimburses hospitals on a
specific procedure basis?
Answer 4. Our proposed prospective payment system for hospital
outpatient departments (OPDs) does, in fact, define the unit of payment
based on the individual service the hospital furnishes. It includes
things furnished as an integral part of the procedure or visit such as
supplies, anesthesia, drugs, blood, recovery room, etc. We do not
propose to package payment for things that are related, but are not an
integral part of the service, such as ancillary laboratory, or other
diagnostic tests.
Grouping services is separate from defining a unit of service.
Although the payment is based on the individual unit of service, it is
calculated by grouping services that are similar clinically, and with
respect to resource use. The median cost for each service in a group is
calculated and then the median cost of all services within the group is
determined. This group median cost is then used to calculate a relative
weight that applies to the individual services in the group. Although
we group services to calculate a group payment amount, our proposed
system also may be viewed as a fee schedule that applies the same
payment to similar services.
We received a number of comments and recommendations as a result of
the comment period of the proposed rule and are in the process of
analyzing them. We will respond to these recommendations in the final
rule.
Question 5. As we know, there are winners and losers with the
implementation of every new payment system. We have heard a lot from
providers who have complained about the APC system, but not from the
ones that will benefit. Can you identify the groups who have benefited
to us and explain why their reimbursement rates went up?
Answer 5. Those providers with more positive impacts are hospitals
that have lower than average costs, or who used more accurate procedure
coding under the current system. However, these projections in the
proposed rule are based on current medical and billing practices, which
will likely change after the system is implemented. Past experience
tells us that these changes tend to produce much better financial
impacts on hospitals than were projected. Attached is a chart
identifying the groups who have benefited.
Question 6. There were considerable problems in implementing the
SNF PPS and outpatient therapy fee schedule, resulting in delayed
payment and providers having to reprocess bills for coinsurance
changes. Given that HCFA will need to implement major software changes
for SNF and home health payment systems, how do you propose to handle
another major computer change in July 2000 when you implement the
outpatient PPS? What are you doing to ensure that millions of
beneficiaries do not end up paying higher coinsurance and that
hospitals don't have to reprocess millions of bills if the system is
only partially or incompletely installed by July 1?
Answer 6. We implemented SNF PPS in July 1998 without major
problems. There were implementation issues with SNF consolidated
billing for Part B services; however, because we delayed implementation
of this provision due to our Y2K systems priorities, these problems
were put in abeyance. Since implementation of SNF PPS, we have gained
valuable experience with implementing systems changes. We now have an
Agencywide change management program that is designed to assure that
instructions to Medicare contractors are thoroughly coordinated within
HCFA and, because of rigid time frames, final instructions are
communicated to contractors well in advance of implementation. We are
more fully including our contractors and standard system maintainers in
planning activities for implementing systems changes. In addition, our
experience in managing contractor Y2K compliance has reinforced the
importance of thorough testing of systems changes. That experience is
being translated into additional testing of systems changes through the
use of outside Beta testing contractors. We believe the lessons we have
learned have been invaluable and will enable us to more smoothly
implement systems changes like PPS in the future.
Question 7. In developing the APC system, you utilized 1996 cost
data. Given the speed at which new drug therapies are entering the
marketplace, (many after 1996) how do you propose developing reasonable
reimbursement rates for these new products? How long will it take you
to develop payment rates for new products? Do you think that all drug
therapies can be effectively captured within the APCs? Is it
appropriate to include orphan drugs within an APC system?
Answer 7. As will be specified by the final rule, we have responded
to comments on these very important issues. Where drugs are not
considered appropriate to package with another procedure in an APC,
options for assigning separate APCs for that drug or drugs are being
developed. The final rule will specify how new technologies will be
priced for the system on a rapid turn around basis. All technologies
that could not have been recognized in the 1996 data will be considered
as new technologies for this policy. Prices for new technologies can be
implemented with the quarterly updates to HCFA's contractor systems. We
have further outlined our plans for the final rule in our October 19
letter to you.
Question 8. HCFA has stated that the therapy cap will be
implemented on a per-provider basis due to your inability to track a
beneficiary's use of services. Will you be able (and do you intend) to
implement it as a per-beneficiary cap after Y2K?
Answer 8. After Y2K, we intend to implement the therapy caps on a
per beneficiary basis. However, we are concerned that the caps are
adversely affecting beneficiaries' access to needed services. We want
to work with Congress on legislation to make changes to the cap.
Question 9. What is your opinion about the need for changing the
reimbursement levels for home health agencies? Do you agree with GAO's
analysis that access to home health services has not been harmed by the
BBA?
Answer 9. Our monitoring of the impact of BBA shows that overall
there does not appear to be an access problem to home health services.
We are concerned with access and will continue to monitor this closely.
We will also continue to keep you posted on our monitoring and look
forward to working with you on BBA refinement legislation to ensure
access to care.
Question 10. What are the pitfalls associated with raising the
therapy cap from its current $1500 limit? Would it be wiser to move to
one overall cap, say $3000, or have three separate caps, one each for
PT, and ST, and OT?
Answer 10. We continue to be concerned about these caps, and are
troubled by anecdotal reports about the adverse impact of these limits.
The HHS Inspector General (IG) has agreed to study the impact of the
caps. The IG's initial analysis of 1998 data on SNF therapy services,
under Medicare Part B, indicates that 29% of beneficiaries receiving
services would have exceeded a joint physical/speech therapy cap of
$1500; 26% would have exceeded a physical therapy-only cap of $1500;
and, 22% would have exceeded a speech-only cap of $1500. Further study
by the IG and others will help us determine whether, and how, any
adjustments should be made. We will continue working with
beneficiaries, providers, Congress, and other interested parties to
closely monitor the situation, evaluate evidence of problems in access
to quality care, and develop appropriate, fiscally responsible
solutions. As follow-up to our round table discussion, I've provided
the Committee with an analysis of various options for changing the
caps.
Question 11. Has HCFA determined or estimated the total number of
SNF beneficiaries who will meet the caps this year or in any year? Do
you know how many of these instances are secondary episodes of illness
or accidents in one year?
Answer 11. As mentioned above, the IG's initial analysis of 1998
data on SNF therapy services, under Medicare Part B, indicates that 29%
of beneficiaries receiving services would have exceeded a joint
physical/speech therapy cap of $1500; 26% would have exceeded a
physical therapy-only cap of $1500; and, 22% would have exceeded a
speech-only cap of $1500. Further study by the IG and others will help
us determine whether, and how, any adjustments should be made. However,
at this time, we do not know how many instances are secondary episodes
of illness or accidents in one year. Such a determination would require
extensive data analysis and could not be completed in a short period of
time.
Question 12. What would it take for HCFA to speed up the creation
of a less arbitrary, diagnosis-related coverage system? What is the
earliest it could be implemented?
Answer 12. We support establishing a payment system for outpatient
therapy services tied to patient needs rather than defined by an
arbitrary, uniform dollar limitation. However, our investigations and
research thus far to determine the impact of the therapy caps required
by the Balanced Budget Act of 1997 on patient access to outpatient
rehabilitation services, have already revealed that patient diagnosis
extracted from claims data may not be adequate to predict utilization.
At a minimum, patient diagnosis is going to have to be supplemented by
variables such as functional status and patient capacity for
improvement.
Unfortunately, calibrating a payment system that is attuned to, and
responsive to, the outpatient therapy needs of Medicare beneficiaries,
requires information that simply is not available at this time either
within or outside of HCFA. There are no short cuts to setting up a
good, comprehensive, flexible payment system. We have to collect a
critical mass of data that accurately classify patient needs using
stilltobecreated tools such as functional assessment measures; process
these data; and, then design a payment methodology in a budget neutral
manner. This process could take many years and would be resource
intensive.
In the meantime, the most expedient shortterm alternative to the
longer-range development of a comprehensive payment system seems to lie
with legislative changes to either raise or reconfigure the caps in
some way.
Question 13. Does HCFA have any data on the most common diagnosis
groups that meet or exceed the caps? In your opinion, what Part B
services are appropriate to exclude from a consolidated billing
requirement?
Answer 13. We are very concerned about the anecdotal reports
regarding the adverse impacts of these caps. Data using specific
procedure codes are just now becoming available. We will examine
therapy claims data to determine which beneficiaries exceed the caps.
However, we do not think that diagnosis accounts very well for levels
of therapy utilization. Data on functional status may be very useful in
this regard, but it is not currently collected.
With respect to excluding services from consolidated billing
requirements, using our limited discretion as afforded by the statute,
we have administratively excluded certain types of exceptionally
intensive outpatient hospital services that lie well beyond the scope
of the care SNFs would traditionally furnish. Examples of these types
of services include outpatient surgery, MRIs, radiation therapy, and
emergency services. We are currently considering excluding additional
outpatient hospital services such as certain chemotherapy services.
Establishing exclusions in settings other than outpatient hospitals
would require a change in statute.
Question 14. What types of administrative changes are you
considering to SNF PPS?
Answer 14. We are carefully reviewing the possibility of making
budget neutral administrative changes to the prospective payment system
for skilled nursing facilities (SNF PPS).
The BBA mandated a per diem SNF PPS covering all routine,
ancillary, and capital costs related to covered services provided to
beneficiaries under Medicare Part A. The law requires the use of 1995
costs as the base year, and implementation by July 1, 1998, with a
three-year transition blending facility-specific costs and prospective
rates. It did not allow for exceptions to the transition, carving out
of any service, or creation of an outlier policy.
This past Spring, we held a town hall meeting to hear a broad range
of skilled nursing facility concerns, and we continue to meet with
provider and beneficiary representatives. We recognize there are
concerns that the SNF PPS does not adequately reflect the costs of non-
therapy ancillaries such as drugs for high acuity patients.
As mentioned previously, the HHS Inspector General survey does not
suggest that the SNF PPS prospective payment system is causing access
to care problems at this time. And the proportion of beneficiaries
discharged to skilled nursing facilities is unchanged from 1998, and
hospital lengths of stay have not increased. However, there is some
indication from the survey that it does take more time to place
Medicare patients in nursing homes, and facilities are requesting more
information before accepting patients. About half of the nursing home
administrators responding to the survey indicated they are less likely
to accept patients requiring expensive supplies or services. About half
say they are more likely to admit patients who require special
rehabilitation services such as physical therapy following joint
replacement surgery.
We are conducting research that will serve as the basis for
refinements to the resource utilization groups (RUGs) that we expect to
implement next year. We expect the research to be completed by the end
of 1999 and to then develop refinements for implementation in October
2000. We believe these changes should be budget neutral. However, we
are continuing to review whether we have additional administrative
authority. We fully expect that we will need to periodically evaluate
the system to ensure that it appropriately reflects changes in care
practice and the Medicare population.
Question 15. Do you believe that non-therapy ancillary services
were under-accounted for in the final SNF PPS?
Answer 15. Again, the HHS Inspector General survey indicates that
about one in five discharge planners say it takes more time to place
Medicare patients in nursing homes. And about half of the nursing home
administrators indicated they are less likely to accept patients
requiring expensive supplies or services, which may suggest that some
refinements to the resource utilization groups (RUGs) are necessary.
As mentioned above, we are currently conducting research in this
area and our findings will serve as the basis for refinements that we
expect to implement in October 2000. Again, we expect that we will need
to evaluate the RUG periodically to ensure that it appropriately
reflects changes in care practice and the Medicare population.
Question 16. Do you believe that, due to increases in the acuity
levels since 1985, many facilities will be severely disadvantaged by
the transition period?
Answer 16. We are concerned about paying SNFs appropriately for the
care of patients. We do not believe that many facilities will be
severely disadvantaged by the transition period due to increases in the
acuity levels since 1995. First and foremost, under the PPS, SNFs have
the ability to provide care more efficiently than in the past. It has
been suggested by the OIG and GAO in several reports that the rates may
be somewhat inflated as a result of being based on data from the prior
costreimbursement system where incentives often directed providers to
operate inefficiently. Secondly, the three-year transition period
blends facilityspecific and Federal prospective rates. The Federal
rates are casemix adjusted according to clinical and functional
characteristics of SNF residents and will allow higher payments for
higher acuity. We are currently doing research to refine the RUGs,
which will make them even more sensitive to a patient's care needs.
There are legislative proposals that allow SNFs to bypass the
transition.
Question 17. What other options has HCFA considered to deal with
SNF residents with very high drug costs, ventilators, or other
expensive care not taken into account by the PPS?
Answer 17. The SNF PPS, through casemix classification and
adjustment, currently reflect a full range of SNF patient types with
varying characteristics and degrees of resource intensity. Through
research and refinement to the PPS, we will try to ensure that the PPS
not only continues to account for a high level of resource intensity,
but improves in terms of its sensitivity to non-therapy ancillaries,
highly complex cases and less common conditions or patient types. We
engaged in research to determine the potential for making refinements
to the current casemix model to improve accuracy of the payments. We
note that the law does not give us the direction to adopt some of the
options contained in the comments to the SNF PPS regulations such as
creation of an outlier policy or cost-based payments for nontherapy
ancillary services.
Question 18. Do you have any figures on losses for different RUGs
categories?
Answer 18. Currently we have little data in this area. However, we
have recently commissioned a research contractor to develop data and
analysis as part of our overall effort to make refinements to the PPS.
We plan to have this research completed and refine the system next
year. We note that the OIG's recent report on access in SNFs noted that
discharge planners were finding it easier to place rehabilitation
patients in SNFs due to the relatively higher reimbursement rates for
special rehabilitation. The majority of Medicare SNF patients fall
within the rehabilitation RUGs.
Question 19. Do you believe the new PPS has had an impact on the
current spate of bankruptcies in the SNF community?
Answer 19. We are concerned about the impact of the PPS on the
industry. However, in our initial analysis, we have not found it to be
a major contributor to the bankruptcy filings. According to a July 1,
1999 Business Week article, financial analysts have been quoted as
saying that the financial instability of the SNF community is primarily
due to over leveraging when Congress cutback on Medicare and for high-
priced acquisitions at the wrong time.
We are continuing to monitor the impact of PPS on various provider
groups and will continue to keep you informed on our analysis.
Question 20. Do you any idea how many residents are at risk due to
closures of SNFs?
Answer 20. We do not expect to be faced with the widespread closure
of SNFs due to changes imposed by the BBA. Recently, we have seen
activity by several large nursing homes of filing for bankruptcy. This
filing is for Chapter 11 only, which primarily reorganizes the
company's organization structure and does not affect patient care. We
are working with States to closely monitor the quality of care in
nursing homes belonging to a Chapter 11 chain. We also routinely work
with the States in the event of a SNF closing ensuring the health and
safety of the resident is not compromised.
Question 21. In the July 1999 update for home health cost limits,
HCFA reported that over 90 percent of all home health agencies will be
over either the per-beneficiary or per-visit limits. Is this accurate?
Please provide the appropriate back up data to support your answer.
Answer 21. The August 5, 1999 Federal Register notice, indicating
the per-beneficiary and per-visit limits under the IPS for FY2000,
estimates that 15 percent of HHAs will be subject to the per-visit
limitation while 79 percent will be subject to the per-beneficiary
limitation. The remaining agencies will receive their actual costs. No
one agency will be limited by more than one limit.
The FY 2000 limits are applicable to cost reporting periods, or
portions of cost reporting periods, beginning on or after October 1,
1999. While the PPS is scheduled to be implemented on October 1, 2000,
the estimates made in the August 5th regulation assume the continuation
of IPS minus the statutory 15 percent cut in payment limits mandated
for October 1, 2000, if the PPS does not go into effect. As such, for
those agencies whose cost reporting periods end after October 1, 2000,
the estimate reflects the 15 percent cut in payment limits that would
take effect. We plan to implement the home health PPS on October 1,
2000, and we published the notice of proposed rulemaking on October 28,
1999.
The Balanced Budget Act of 1997 required that the IPS be based on
data from 12-month cost reporting periods ending during FY 1994 and
updated to the current years. The attached table shows the estimated
impact of the IPS on HHAs, effective October 1, 1999. Column one of
this table divides HHAs by number of characteristics including their
ownership, whether they are old or new agencies, whether they are
located in an urban or rural area, and the region in which they are
located. Column two shows the number of agencies that fall within each
characteristic or group of characteristics. Column three shows the
percent of HHAs within a group that are projected to exceed the per-
visit limitation (and therefore will not be affected by the per-
beneficiary limitation) before the behavioral offsets are taken into
account. Column four shows the average percent of costs over the per-
visit limitation for an agency in that cell, including behavioral
offsets. Column five shows the percent of HHAs within a group that are
projected to exceed the per-beneficiary limitation (and therefore will
not be affected by the per-visit limitation) before the behavioral
offsets are taken into account. Column six shows the average percent of
costs over the per-beneficiary limitation for an agency in that
category, including behavioral offsets. It is important to note that in
determining the expected percentage of an agency's costs exceeding the
cost limitations, column four (percent of costs exceeding visit limits)
and column six (percent of costs exceeding beneficiary limits) cannot
to be added together. Either the per-visit limitation or the per-
beneficiary limitation is exceeded, but not both.
Question 22. Can you assure us that the PPS for home health
services will be ready to be implemented by October 1, 2000?
Answer 22. Yes, we published the proposed rule for the home health
prospective payment system on October 28, 1999, and we expect to have
the system in place by the October 1, 2000 statutory deadline.
Question 23. How are home health agencies coping with new
regulatory changes such as OASIS, new billing requirements and the 15-
minute visit increment reporting?
Answer 23. There have been a number of challenges that home health
agencies have faced since the enactment of the BBA and we have worked
to use administrative flexibility where possible under the law. This
past July 19, agencies began collecting OASIS data. On August 24, 1999
agencies began transmitting OASIS data to states. We have provided free
software called HAVEN (Home Assessment Validation and Entry) that can
be used for encoding and transmission. While we are just beginning the
second month of receiving data, the early agency response is favorable.
Currently, we have over 2 million records of completed OASIS
assessments in the national repository.
Early evidence suggests that providers are managing well with
OASIS. Assessments, such as the OASIS are not a new requirement. It is
important to realize the HHAs have been and will continue to do
comprehensive assessments of their clients. Doctors, nurses, and
therapists are trained to do such assessments as part of their routine
care. Such assessments are critical for providers to know if patients'
needs are being met or they are improving. OASIS merely standardizes
such assessments. A motion study was performed by our contractor
analyzing the initial assessment (time spent with patient and time
spent on documentation). On average, by standardizing the assessment,
total time spent is the same, but time spent on documentation
decreased. This allows more time to be spent with the patient. Such
standardization allows for efficiency in addition to accurate payment
and quality oversight and improvement.
Regarding the 15-minute increment, the BBA required that home
health agencies report the number of 15-minute increments comprising
each service, otherwise, ``. . . no claim for such services may be paid
. . .'' The purpose of this provision is to obtain data that might be
useful in developing or refining a home health prospective payment
system (PPS). It will not affect the amount of payments to home health
agencies under the IPS or the PPS. We have met with industry
representative to clarify how the 15-minute reporting requirement
should be implemented and have made this information available on our
website. In order to allow agencies significant time to implement this
requirement, we phased it in over a three-month period from July 1 to
October 1, 1999. However, we continue to hear complaints from agencies
about this requirement that range from the burden of recording and
reporting this information to what activities should or should not be
included in the reporting.
Question 24. What type of guidance have you provided the industry
and your own claims processors to ensure care is not inappropriately
denied? Has any agency been sanctioned for denying access to care as a
result of their misunderstanding of the new law?
Answer 24. HHAs have been receiving guidance on the appropriate
manner in which the per-visit and per-beneficiary limits under the IPS
must be applied. When it became clear, shortly after the IPS began that
some agencies may erroneously be applying the limits to individual
beneficiaries, rather than applying the limits in the aggregate, the
Administrator send a letter to all HHAs clarifying the issue. In her
February 3, 1998 letter, the Administrator wrote, ``The new aggregate
cap reflects the typical utilization of home health services for each
HHA during the FY 1994 base period established by Congress. It allows
HHAs to balance the cost of caring for any one patient against the cost
of caring for all patients. We believe all Medicare enrollees can be
safely and efficiently cared for under this payment system by HHAs that
deliver quality care efficiently . . . Any reports of HHAs misinforming
beneficiaries or inappropriately terminating care for Medicare
enrollees will be considered the basis for a complaint survey that
could lead to termination of the HHA from Medicare.''
We continue to address the issue with our regional offices, who
along with the states, are investigating complaints that we receive
concerning inappropriate discharges or cutting back on covered
services. Agencies found to have substantiated complaints made against
them are required to submit an acceptable plan of correction to us or
our agents. We and the state agency will resurvey the agency some time
after the plan of correction is submitted to ensure that the agency has
come into compliance. If the agency has not, it can be terminated.
The five Medicare claims processors for home health have
continually been performing provider education for HHA associations and
individual agencies on the IPS, based upon HCFA program memorandum and
notices describing how the IPS should be implemented.
Question 25. Do you agree with GAO's analysis that access to home
health services has not been harmed by the BBA?
Answer 25. Home health beneficiaries are among the most vulnerable
and we are closely monitoring the effects of the BBA changes on
beneficiary access to home health care and agency closures. To date,
evaluations by the GAO and HHS have not found that the changes are
causing significant quality or access problems in the home health area.
Our monitoring of employment data indicates that freestanding home
health agencies have made small reductions in their workforce, back to
the level seen in 1996. We have heard reports from beneficiary groups,
our regional offices, and others regarding home health agencies that
have inappropriately denied or curtailed care, and incorrectly told
beneficiaries that they are not eligible for services. We are also
hearing reports from beneficiary advocates and others that some high
cost patients are having trouble finding home health agencies to
provide the care they need. This may result from a misunderstanding of
the new incentives to provide care efficiently, or from efforts to
``cherry pick'' low-cost patients and game the system.
In order to address this, we have provided home health agencies
with guidance on the new incentives and their obligation to serve all
beneficiaries equitably. We have instructed our claims processing
contractors to work with agencies to further help agencies understand
how the limits work. I assure you we will continue to monitor the
situation closely.
Question 26. How would you respond to agencies who claim that your
own regulation of August 5 regarding cost limits predicts that 93.5% of
surviving agencies will exceed their FY 2000 per-beneficiary cost limit
or per-visit cost limit and that on average, agencies will have to
repay HCFA 12% of its Medicare costs?
Answer 26. The law requires that HHAs receive the lower of their
actual costs or their actual costs up to the per visit limit or their
actual costs up to the per beneficiary limit. The August 5, 1999
Federal Register notice, which informs agencies about the per-
beneficiary and per-visit limits under the IPS for FY2000, estimates
that 15 percent of HHAs will be limited by the per-visit limitation
while 79 percent will be limited to the per-beneficiary limitation. The
remaining agencies will be limited to their actual costs. For those
agencies limited by the per-beneficiary limits, the average percent of
the agency's costs exceeding the per-beneficiary limitation is 12.1
percent. Those agencies limited by the pervisit limit will on average
have 1.3 percent of their costs exceed the pervisit limit. Because the
interim rates have been calculated to reflect the level of the limits,
the amount of actual costs exceeding the applicable limit for any one
agency will not be paid to the agency by Medicare. Medicare will pay
only up to the applicable cap, not in excess of it.
Because agencies have now had two years of experience under the IPS
they are better able to perform efficiently. The data upon which the
estimate of the percent of agency costs exceeding either limit predates
the IPS. Therefore the estimates likely inflate the average percent of
costs that agencies will incur above the limits.
Question 27. Please respond to the following from the testimony of
the American Medical Association. ``In the first two years of the SGR,
erroneous HCFA estimates have already shortchanged physician payments
by more than $3 billion. These projection errors have not been
corrected and HCFA does not plan to do so. Specifically, one year after
the 1997 notice, HCFA reneged on its pledge to correct SGR errors and
simultaneously issued its moist egregious error projecting Medicare
managed care enrollment would rise 29 percent in 1999, despite the many
HMOs abandoning Medicare in 1999.''
Answer 27. After BBA was enacted, our actuaries identified problems
with the SGR target. Specifically, they found that once the SGR target
is set for a year, it cannot be changed, even to correct for estimation
errors and even if better data on elements in the SGR formula are
subsequently available compared to when the SGR was set. This problem
was discussed in the November 2, 1998 Federal Register notices on the
FY 1999 SGR. While we had initially thought that this latter problem
could be dealt with under current law, the HHS General Counsel has
indicated current law will not permit us to fix the problem. In our
September 30, 1999, Federal Register notice, we confirmed that we could
not make adjustments for projection errors under existing authorities.
The President's FY 2000 budget contains a legislative proposal for
a budget-neutral technical fix to solve this problem. The proposal
would correct projection errors automatically beginning with the CY
2000 SGR. The proposal would also make adjustments for the two
historical years of SGR (FY 1998 and FY 1999). However, this aspect of
the provision would result in a cost to the program. Technical changes
to the SGR system would offset some of the costs of correcting for
projection errors. We have also proposed an adjustment to make the
proposal budget neutral. If our legislative proposal only corrected for
projection errors and did not also include other changes to make it
budget neutral, it would provide physicians with additional payments
relative to current law.
Correcting for projection errors could work to either increase or
decrease the physician fee schedule update. Under the SGR system to
date, correcting for projection errors would have the effect of
increasing the physician fee schedule update. However, under the prior
Medicare Volume Performance Standard (MVPS) system, we also did not
correct for projection errors. Those projection errors tended to
overstate the MVPS and the subsequent updates. We would like to
continue to work with the Congress and the AMA on a legislative
solution that provides more stability to the system and requires the
Secretary to correct estimation errors.
Question 28. What authority do you believe you have to correct for
inaccurate assumptions on the SGR, particularly in light of the
cumulative effect of these calculations?
Answer 28. According to the General Counsel's office, the language
of the statute is clear: we do not believe that we have the authority
to make adjustments. In our October 1, 1999, Federal Register final
notice, we confirmed that we could not make adjustments for projection
errors under existing authorities.
Question 29. As we understand it, the American Medical Association
and the specialty groups first wrote the HCFA Administrator about their
concerns with the projection errors in the Sustainable Growth Rate on
December 2, 1998 (within the comment period on HCFA's November 2, 1998
SGR Notice). Then they sent another letter to HCFA about this problem
on May 21, 1999. Has the HCFA Administrator responded to these letters
from the physician community?
Answer 29. Because of the volume of written comments on proposed
rules, notices and regulations, we do not generally respond in writing
to comments on proposed rules. We do try to address comments on any
proposal notice or rule in the corresponding final versions, as
appropriate. The December 2, 1998 letter was a comment on a final rule
with comment period published in the Federal Register on November 2,
1998. We specifically addressed the December 2, 1998 comment in the
final notice published in the October 1, 1999 Federal Register (Vol.
64, No. 190, page 53396).
The March 21, 1999 letter addressed issues raised in the November
2, 1998, final rule, but was not a public comment. We responded
directly to the signers of that letter on September 24, 1999. A copy of
our response is attached.
Question 30. Can you tell us the status of your proposed rulemaking
to change your policy on coverage of self-administered injectable drugs
in a physician's office? Please provide us with the statutory and the
policy rationale for this proposed change.
Answer 30. By law, Medicare covers only those drugs approved by the
Food and Drug Administration that are furnished incident to a
physician's services and cannot be self-administered. There are a few
exceptions that are explicitly provided in section 1861(s)(2) of the
Social Security Act. Historically, we have interpreted this coverage
restriction as it pertains to the characteristics of the drug, not to
the capacity of a beneficiary's ability to self-administer any drug.
Nevertheless, because of concerns expressed by Congress and others
regarding the specific capacity of individual beneficiaries to self-
administer, and the recognition of the evolving state of medical
practice, we have decided to review our current position. To
appropriately elicit input and comment for relevant stakeholders on
this issue, we intend to develop a proposed rule to better define the
term ``self-administered.'' The development of a number of options for
defining ``self-administered'' and the issuance of the proposed rule
will be a high priority.
Question 31. HCFA's final rule implementing BBA 97 denies payment
for telemedicine store and forward applications. In the rule, HCFA said
that in order to qualify as a ``consultation,'' all practitioner/
provider encounters had to occur in real time. Please provide an
explanation for this decision and explain to us whether you believe you
have the statutory authority to change this decision.
Answer 31. Medicare payment for teleconsultation, as provided in
the November 8, 1998 final rule, represents a significant improvement
over traditional Medicare policy for rural areas by allowing payment
for a service that historically has required a face-to-face, ``hands
on'' encounter. Under the regulation, a teleconsultation is an
interactive patient encounter that must meet criteria for a given
consultation service included in the American Medical Association's
Current Procedure Terminology. The technology used to deliver a
teleconsultation must allow the consultant to conduct an examination in
``real time'' using interactive audio and video equipment.
This rule represents a first step in refining face-to-face
requirements for a medical service under Medicare to accommodate
telemedicine services. We are open to developing modifications to
Medicare telemedicine coverage and payment policies as the law permits
and as more program experience in this area is obtained. The Secretary
has identified several issues related to teleconsulting, including the
use of store-and-forward technologies for delivering medical services
that need to be addressed further. The Secretary has directed us to
specifically examine the policy and financial implications of these
technologies, as well as the use of registered nurses and other medical
professionals not recognized as practitioners under Medicare to present
the patient to the consulting practitioner, and the appropriateness of
current consultation codes for reporting consultations delivered via
communications systems.
Question 32. HCFA has interpreted the BBA97 telemedicine provisions
to require the presence of a ``presenting practitioner'' in order for
the encounter to qualify for telemedicine reimbursement. The presenting
practitioner must be a health care provider eligible for Medicare
reimbursement such as a physician, a nurse practitioner, or a physician
assistant. Registered and licensed practical nurses are not permitted
to serve as presenters. Please provide us with your rationale in
limiting reimbursement to ``presenting practitioners.'' Also, do you
believe that this decision will harm access to telemedicine for
patients in rural areas? Do you have any plans to revisit this
interpretation?
Answer 32. Our decision to require the telepresenter to be a
medical professional which is recognized as a practitioner under the
Medicare program was determined by the BBA 1997. Section 4206(a) of BBA
specifies that the individual physician or practitioner providing the
professional consultation does not have to be at the same location as
the physician or practitioner furnishing the service to the
beneficiary. We believe this language is limiting and requires that a
practitioner, as recognized under section--1842(b)(18)(C) of the Act,
must be present with the patient during the teleconsultation. Since the
same phrase describes the medical professional at both ends of the
teleconsultation, we believe that it would be difficult to interpret
the phrase to have one meaning for purposes of identifying the
consultant and a different meaning for purposes of identifying who may
be physically with the patient. Therefore, registered nurses, and other
medical professionals not recognized as practitioners under section
1842(b)(18)(C) cannot act as presenters during teleconsultations.
This statutory language could place an additional barrier on
Medicare beneficiaries to receiving teleconsultation; especially in
areas where there is a shortage of health care practitioners. We have
already made plans to revisit this issue and are currently evaluating
the use of nurses as telepresenters.
Question 33. HCFA has interpreted the BBA97 provisions to authorize
Medicare payments only for those CPT codes which include the word
``consultation.'' Please provide us with your rationale for this
interpretation and include commentary about whether it is appropriate
to include direct services provided by clinical psychologists, clinical
social workers, and physical, occupational, and speech therapists
within this definition.
Answer 33. The BBA limits the scope of coverage to professional
consultation for which payment is currently made under Medicare. We
believe that a consultation is a specific service that meets the
criteria specified for a consultation service in the AMA 1998 Current
Procedure Terminology. BBA does not give authority to cover services
beyond consultation under this provision.
Under existing Medicare policy, clinical psychologists, clinical
social workers, physical, speech and occupational therapists can not
bill , nor receive payment, for consultation services under Medicare.
Therefore, these practitioners are prohibited from billing a
teleconsultation because under Medicare no payment would be made to
these practitioners for providing a consultation service.
We recognize that the teleconsultation rule is a first step in
defining face-to-face ``hands on'' requirements for a medical service
under Medicare to reflect a telemedicine service. We are not
eliminating the possibility of the development of modifications to
Medicare telemedicine coverage and payment policies as the law permits
and as more program experience in this area is obtained. As previously
mentioned, we are currently exploring several issues, including the use
of store and forward technologies as a method for delivering medical
services and the use of registered nurses and other medical
professionals not recognized as a practitioner under the
teleconsultation provision to present the patient to the consulting
practitioner. Additionally, we are examining the appropriateness of
current consultation codes for reporting consultations delivered via
communications systems. We plan to provide the Secretary with policy
recommendations regarding these issues.
Question 34. On several occasions, we have orally asked for a copy
of the contract HCFA signed with 3M when it decided to utilize 3M's
services to review the comments and perform consulting work on the
final hospital outpatient prospective payment system rule. Please
provide us with a copy of this contract and any supporting memorandum
which you used to justify your decision to hire 3M.
Answer 34. We apologize for the delay in providing the 3M contract.
Attached, to be included as part of the answers for the record, is a
copy of the contract and supporting requisition justifying our decision
for hiring 3M.
Questions for the Record Submitted by Rep. Strickland
Question 1. Mr. Hash, from your vantage point as the Deputy
Director of the Health Care Financing Administration, you have heard
complaints from Members of Congress and health care providers about the
negative affects of the Balanced Budget Act. In your judgement, are
there patients being denied necessary and vital care as a result of the
BBA provisions enacted by Congress and carried out by HCFA?
Answer 1. Thus far, our monitoring reveals evidence of isolated but
significant problems. Although our analysis is not yet complete, we are
concerned, for example, that some beneficiaries are not getting
necessary care because of the BBA's $1500 caps on certain outpatient
rehabilitation therapies. We will continue working with beneficiaries,
providers, Congress, and other interested parties to closely monitor
the situation, evaluate evidence of problems in access to quality care,
and develop appropriate, fiscally responsible solutions.
Question 2. Does HCFA believe that the crisis situation created by
the Balanced Budget Act is of such a proportion that it warrants
immediate action by Congress? And if so, would HCFA please relay to the
Committee which BBA provisions it feels Congress should address in
order to restore patients' access to quality of care?
Answer 2. We are pleased that both the House and the Senate are
considering legislation to address some of the unintended consequences
of the Balanced Budget Act. The President is committed to ensuring
enactment of such needed legislation this year. In 1997, we worked
together to enact important reforms that contributed to extending the
life of the Medicare trust fund to 2015. As with any major legislation,
the BBA included some policies that are flawed or have unintended
consequences. The Administration has taken numerous administrative
actions to address these problems and provided funding for legislative
fixes in the context of the President's comprehensive Medicare reform
plan. We want to work together during the final days of this
Congressional session to take action to moderate some of the policies
included in the BBA.
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