Chairman Roth, Senator Moynihan, distinguished Committee members, thank you for
inviting us to discuss the impact of the Balanced Budget Act on Medicare fee-for-service
beneficiaries and providers. The BBA includes important new preventive benefits and
payment system reforms that promote 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.
We have implemented more than half of the BBA's
335 provisions affecting our programs, including the new preventive benefits such as
diabetes education, and a prospective payment system for skilled nursing facilities. In
most cases, the statute prescribes in great detail the changes we are required to make. We
are committed to affording providers maximum flexibility within our limited discretion as
we implement the BBA.
Change of this magnitude always requires adjustment. It is not surprising that market
corrections would result from such significant legislation. Our first and foremost concern
has always been and will continue 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. Our regional offices are gathering extensive information from
around the country to help us determine whether specific corrective actions may be
necessary. We should be cautious about making changes to the BBA until we consider
information and evidence of problems in beneficiary access to quality care.
It is clear that the BBA is succeeding in promoting efficiency and extending the life
of the Medicare Trust Fund. However, the BBA is only one factor contributing to changes in
Medicare spending. Our actuaries tell us that low inflation from a strong economy and
aggressive efforts to pay correctly and fight fraud, waste, and abuse are also having an
impact on total spending. We have significantly decreased the number of improper payments
made by Medicare. And, for the first time ever, the hospital case mix index is down due to
efforts to stop "upcoding,"the practice of billing for more serious diagnoses
than patients actually have in order to obtain higher reimbursement. It is also important
to note that some of the slowdown in spending growth results from slower claims processing
and payment during the transition to new payment systems.
The BBA also is only one factor contributing to provider challenges in the rapidly
evolving health care market place. Efforts to pay right and promote efficiency may mean
that Medicare no longer makes up for losses or inefficiencies elsewhere. We are concerned
about reports about the financial conditions of some providers. However, it is essential
that we delineate the BBA's impact from the
effects of excess capacity, discounted rates to other payers, aggressive competition, and
other market factors not caused by the BBA.
New Preventive Benefits
One set of significant changes brought about by the BBA is coverage of key preventive
health benefits. We have:
- expanded coverage for test strips and education programs to help diabetics control their
disease;
- begun covering bone density measurement for beneficiaries at risk of osteoporosis;
- begun covering several colorectal cancer screening tests;
- 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,
- begun covering annual screening mammograms for all 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.
Payment Reforms
The BBA made substantial changes to the way we reimburse providers in the
fee-for-service program. We have made solid progress in implementing these payment
reforms. For example, we have:
- modified inpatient hospital payment rules;
- established a prospective payment system for skilled nursing facilities to encourage
facilities to provide care that is both efficient and appropriate;
- refined the physician payment system, as called for in the BBA, to more accurately
reflect practice expenses for primary and specialty care physicians; and
- 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,
- begun implementing an important test of whether market forces can help Medicare and its
beneficiaries save money on durable medical equipment.
Monitoring Access
The payment reforms have created change for many of our providers, even though the
percentage of providers who signed Medicare participation agreements increased by more
than 6 percent to a record 85 percent for 1999. 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. In addition to these efforts, we are systematically gathering
data from media reports, beneficiary advocacy groups, providers, Area Agencies on Aging,
State Health Insurance Assistance Programs, claims processing contractors, State health
officials, and other sources to look for objective information and evidence of the impact
of BBA changes on access to quality care.
We are examining information available 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 monitoring 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 profit 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.
We are being assisted by our colleagues at the HHS Inspector General's office. They have agreed to study the impact of the
BBA's $1500 limits on outpatient rehabilitation
therapy. They have also agreed to interview hospital discharge planners as to whether they
are having difficulty placing beneficiaries in home health care or skilled nursing
facilities. Results of that study should help provide information in addition to surveys
done for the General Accounting Office and the Medicare Payment Advisory Commission of
home health agencies. And, because home health beneficiaries are among the most
vulnerable, we have established a workgroup to develop an ongoing strategy for monitoring
beneficiary access and agency closures.
Specific BBA Provisions
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 for care 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
October so we can begin receiving and evaluating public comments, and 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 their limit. The interim
system includes a new, aggregate per beneficiary limit designed to provide incentives for
efficiency until the prospective payment system can be implemented.
Last year Congress raised the limits on costs somewhat in an effort to help agencies
under the interim system. 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 giving agencies up to a year to repay overpayments
resulting from the interim payment system. And, effective July 1, we are ending the
sequential billing policy that had raised cash flow concerns for some agencies. This rule
was designed to help facilitate the transfer of payment for care not related to inpatient
hospital care from Part A to Part B, but we have determined we can accomplish the transfer
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 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 quality or access problems. However, as mentioned above, because home health
beneficiaries are among the most vulnerable, we are planning for ongoing detailed
monitoring of beneficiary access and agency closures.
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 and included no incentives to provide care efficiently. The new
system uses mean-based 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 as a base year, and implementation by July 1, 1998
with a three year transition. 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, but we believe we have little
discretion.
We held a town hall meeting earlier this year to hear a broad range of provider
concerns. There were concerns that the prospective payment system does not fully reflect
the costs of non-therapy ancillaries such as drugs for high acuity patients. We share
these concerns and are conducting research that will serve as the basis for refinements to
the resource utilization groups that we expect to implement next year. And 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. We are concerned about
anecdotal reports of problems resulting from the prospective payment system. As stated
earlier, we have asked the HHS Inspector General to evaluate the situation.
Outpatient Rehabilitation Therapy: The BBA imposed $1500 caps on the amount of
outpatient rehabilitation therapy services that can be reimbursed. We continue to be
concerned about these limits and are troubled by anecdotal reports about the adverse
impact of these limits. Limits on these services of $1500 may not be sufficient to cover
necessary care for all beneficiaries. Because of our concern, our HHS Inspector General
colleagues have agreed to study the impact of the BBA's
$1500 limit on outpatient rehabilitation therapy to help us judge whether and how any
adjustments to the cap should be made.
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. And we froze
inpatient hospital payments in fiscal year 1998, as required under the BBA, resulting in
substantial savings to taxpayers and the Medicare Trust Fund.
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 could substantially jeopardize
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 making data files available to the industry, and we have extended the
comment period until June 30, 1999 so the industry and other interested parties will have
sufficient time and information to comment.
We do have greater concern for 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 possible
modifications to the system for inclusion in the final rule.
Physicians: As directed by the BBA, we have begun 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 plan to include 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.
We also are seeking legislation to refine the BBA's
Sustainable Growth Rate 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 Sustainable
Growth Rate (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 is unstable, and
would result in unreasonable fluctuations from year to year. Also, the SGR target cannot
be revised to account for new data. The President's fiscal 2000 budget contains a
legislative proposal to deal with these issues.
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. Change of the magnitude encompassed in the BBA inevitably requires
adjustment and fine tuning. It is not surprising that 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. Our regional offices are gathering extensive information from
around the country to help us determine whether specific corrective actions may be
necessary. And we welcome the opportunity to look at any new information regarding
beneficiary access to quality care. We are committed to looking at possible refinements to
the BBA that are within our administrative authority. However, we should be cautious about
making changes to the BBA until we consider information and evidence of problems in
beneficiary access to quality care. We look forward to continuing to work with this
Committee to identify issues of concern, and we will keep you up to date on the status our
of implementation of the BBA. I thank you for holding this hearing, and I am happy to
answer your questions.