[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
           PAYMENT SYSTEMS FOR MEDICARE'S HOME HEALTH BENEFIT

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                             AUGUST 6, 1998

                               __________

                           Serial No. 105-109

                               __________

         Printed for the use of the Committee on Ways and Means




                     U.S. GOVERNMENT PRINTING OFFICE
63-934 CC                    WASHINGTON : 2000



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
                     A.L. Singleton, Chief of Staff
                  Janice Mays, Minority Chief Counsel
                                 ------                                

                         Subcommittee on Health

                   BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada                  GERALD D. KLECZKA, Wisconsin
JON CHRISTENSEN, Nebraska            JOHN LEWIS, Georgia
PHILIP M. CRANE, Illinois            XAVIER BECERRA, California
AMO HOUGHTON, New York
SAM JOHNSON, Texas

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.




                            C O N T E N T S

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                                                                   Page
Advisory of July 30, 1998, announcing the hearing................     2

                               Witnesses

Health Care Financing Administration, Michael Hash, Deputy 
  Administrator..................................................    15
U.S. General Accounting Office, William J. Scanlon, Ph.D., 
  Director, Health Financing and Systems Issues, Health, 
  Education, and Human Services Division.........................    43
Medicare Payment Advisory Commission, Hon. Gail R. Wilensky, 
  Ph.D., Chair; accompanied by Stuart Guterman, Deputy Director..    55
U.S. Department of Health and Human Services, Hon. June Gibbs 
  Brown, Inspector General.......................................    73

                                 ______

Home Care Association of Louisiana, John L. Indest...............   124
National Association for Home Care, and California Home Care and 
  Hospice, Inc., Denise Palsgaard................................   137
Texas Association for Home Care, and Guardian Homecare, Inc., 
  Mary Ann Brock.................................................   108
Tri County Visiting Nurse Association, and Visiting Nurse Service 
  System, Ruth Odgren............................................   131
Visiting Nurse Associations of America, and Visiting Nurse Health 
  System, Jerry Knight...........................................    96

                       Submissions for the Record

A+D Health Care Professionals, Inc., Saginaw, MI, Roselyn Argyle, 
  letter and attachment..........................................   167
American Federation of Home Health Agencies, Silver Spring, MD, 
  Ann B. Howard, statement.......................................   169
American Hospital Association, statement.........................   174
American Physical Therapy Association, Alexandria, VA, statement.   178
Argyle, Roselyn, A+D Health Care Professionals, Inc., Saginaw, 
  MI, letter and attachment......................................   167
Baldacci, Hon. John Elias, a Representative in Congress from the 
  State of Maine, statement......................................     8
Bradberry, Anita, Texas Association for Home Care, Inc., 
  statement......................................................   229
Burgers, Timothy, Home & Health Care Association of 
  Massachusetts, Inc., letter and attachments....................   205
Burkemper, Carole, Great Rivers Home Care, Inc., St. Peters, MO, 
  letter and attachments.........................................   183
Durrence, Hugh D., PHC Home Health, Charleston, SC, letter.......   215
Ferry, Robert, Georgia Home Health Care Agency, Inc., letter.....   182
Fling, James C., TLC Home Health Services, Shamrock, TX, 
  statement......................................................   225
Georgia Home Health Care Agency, Inc., Robert Ferry, letter......   182
Great Rivers Home Care, Inc., St. Peters, MO, Carole Burkemper, 
  letter and attachments.........................................   183
Health Industry Distributors Association, Alexandria, VA, 
  statement......................................................   193
Home Care Association of New York State, Inc., statement.........   197
Home Care Coalition, Alexandria, VA, statement...................   201
Home & Health Care Association of Massachusetts, Inc., Timothy 
  Burgers, letter and attachments................................   205
Home Health Services and Staffing Association, Alexandria, VA, 
  statement......................................................   209
Howard, Ann B., American Federation of Home Health Agencies, 
  Silver Spring, MD, statement...................................   169
Jefferson, Hon. William J., a Representative in Congress from the 
  State of Louisiana, statement..................................    10
Matthews, Bonnie, South Shore Hospital, South Weymouth, MA, 
  statement......................................................   222
New York State Association of Health Care Providers, Inc., 
  statement......................................................   212
PHC Home Health, Charleston, SC, Hugh D. Durrence, letter........   215
PPS Work Group: James C. Pyles, letter, statement and attachment.   217
South Shore Hospital, South Weymouth, MA, Bonnie Matthews, 
  statement......................................................   222
TLC Home Health Services, Shamrock, TX, James C. Fling, statement   225
Texas Association for Home Care, Inc., Anita Bradberry, statement   229
Watts, Hon. J.C., Jr., a Representative in Congress from the 
  State of Oklahoma, statement...................................    12


           PAYMENT SYSTEMS FOR MEDICARE'S HOME HEALTH BENEFIT

                              ----------                              


                        THURSDAY, AUGUST 6, 1998

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:17 a.m., in 
room 1100, Longworth House Office Building, Hon. William M. 
Thomas (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]


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    [GRAPHIC] [TIFF OMITTED]63934A.002
    
    Chairman Thomas. One year ago yesterday, the President 
signed the Balanced Budget Act of 1997. That legislation 
represented a bipartisan agreement to shore up the solvency of 
the Medicare trust funds and increase the number of health care 
choices for our seniors.
    The Balanced Budget Act also brought out necessary changes 
in the way Medicare reimburses providers of home health 
services.
    Let me say at the outset of this particular hearing, 
Republicans and Democrats alike share faith in the value of 
home health care. It is an integral part of the continuum of 
care. We want to ensure that our seniors have access to care 
when they need it, or it best serves their health needs.
    However, as the American populace ages and more seniors go 
into the Medicare program, it is imperative for us to make 
secure the finances of the Medicare trust fund.
    We have taken several steps to ensure the long-term 
solvency and continuing success of Medicare. But I can tell 
you, as Administrative Chairman of the Medicare Commission, we 
still have a long way to go.
    In recent weeks, the administration has reported to this 
subcommittee that, for a number of reasons, the Health Care 
Financing Administration will not be able to implement on time 
the new Medicare home health prospective payment system.
    The delayed implementation of the new reimbursement system 
means that the interim payment system is more significant than 
it would have been, since it will simply have to be used 
longer.
    Today, we will hear testimony on the expected impact of the 
interim payment system, and about the extension of this system 
beyond the intended two-year period as set forth in the 
Balanced Budget Act of 1997.
    We have witnesses from HCFA, the administration, the policy 
experts from the General Accounting Office, Medicare Payment 
Advisory Commission, and the Office of the Inspector General in 
terms of another area that we're dealing with in home health 
care, fraud and abuse.
    We also have witnesses from a number of home health care 
agencies, from all parts of the country. I look forward to not 
only a spirited exchange of ideas, but that all witnesses 
provide their solution to the current problem.
    Any discussion of this issue must begin with the 
recognition that significant changes were necessary and are 
necessary. When Congress acted, spending for the Medicare home 
health benefit was spiraling out of control.
    There are people in the home health care business who 
continue to manipulate innocent seniors, the media, and I'm 
sorry to say, Members of Congress, with half-truths and 
misrepresentations.
    These people want to go back to the cost-based 
reimbursement system, or at least suspend any changes for as 
long as they could possibly have that suspension. Those choices 
are simply not options.
    The IPS, no matter how poorly crafted, was designed to 
control escalating spending and over-utilization, and provide 
more efficient and effective delivery of home health care 
services during the transition to a prospective payment system. 
The IPS does not limit the amount of home health care services 
a beneficiary receives.
    I have seen stories, as I'm sure you have, reported in the 
press, that hundreds of home health agencies are closing. Be 
assured that we intend to closely scrutinize the stated facts 
and the situation involved in these stories, but before these 
facts get bandied about, and the stories become reality, I want 
somebody to closely examine what occurs with the numbers.
    For example, how many of these agencies are, quote unquote, 
``closing,'' but are, in fact, merging?
    This was going to be an inevitable consequence, as an area 
that had, in large part, been a cottage industry, continues to 
grow and become more significant in the delivery of health 
care. But how many of these that are actually mergers are 
counted as closing?
    Then, one of the more insidious aspects of past behavior: 
how many of these agencies closed, and then quickly applied to 
reopen, to take advantage of possibly higher reimbursement 
rates for new agencies? That was just a question.
    MedPAC reports that, in 1994, there were 8,057, more or 
less, home health agencies. In 1997, the latest year for which 
we have numbers, and additional 2,525 agencies opened, so that 
today, we have 10,582 home health agencies serving our seniors.
    And of course, remember, the administration imposed for 
four months, between September and January of last year and 
this year, a moratorium, when there were openings at 
approximately 100 a month, so that this number would have been 
far higher had there not been a temporary moratorium imposed.
    Every report that we have received indicates that the 
number of home health care agencies continues to climb, and 
that patient access is not a problem.
    I would draw your attention to the HCFA regulation soon to 
be published, which refutes accounts of mass closings. HCFA 
reports that it is ``currently receiving many new applications 
from agencies wanting to become Medicare-certified. If there 
are any closures as a result of this payment system, it is 
expected other new agencies or agency expansions will offset 
these closures.''
    I thank the witnesses in advance for being with us here 
today. I ask them to focus, on their oral remarks, onspecific 
recommendations to refine the interim payment system, which address 
both national and regional variations in home health care delivery.
    I apologize to the numerous colleagues who wanted to 
testify.
    I will tell you there has been a greater response to the 
desire to testify on this issue by our colleagues than on 
virtually any other issue that I can remember, and that it 
required a letter, jointly signed by myself and the ranking 
member, to indicate that, given the number of Members who 
wished to testify, that we would receive written testimony only 
from Members, so that we could get through the schedule in a 
reasonable time frame.
    I expect to hear, from every witness, their solution to the 
problem. I don't want to hear the problem. We know the problem. 
We're looking for solutions, in a difficult time, in which HCFA 
can't do what it is supposed to do, because of the ``Y2K 
problem.''
    The gentleman from California.
    Mr. Stark. Thank you, Mr. Chairman. Thank you for holding 
this hearing in response to much concern from many of our 
colleagues. There has been an outcry for change in the Balanced 
Budget Act's home health provisions.
    I would like to join with you to enact a better interim 
payment formula, but I'm worried that if we make changes, we 
may jump from one frying pan into another.
    If we change the interim payment system formula, we're 
going to make a new set of agencies unhappy. The question 
before us really is, who are the agencies, or which are the 
agencies that would win and lose in a formula change; and, is 
there any good health policy rationale for that change?
    You indicated that you had heard that a lot of these 
agencies closed. I heard that 200 for-profit agencies have 
closed in Texas, but 900 have opened. I don't know whether 
that's good, bad, or indifferent, but it doesn't worry me. If 
they want to make a profit, some win, some lose. That's part of 
the market.
    Fraud, waste, and abuse remains rampant in this sector. On 
its face, it's fraud when for-profit agencies provide twice the 
number of visits to the same type of patient as the not-for-
profits. Why shouldn't we, for example, just set the payment 
rate at the median of the nonprofit cost per case, and save us 
all some money?
    In its regs on Medicare Plus Choice, HCFA is requiring that 
HMOs have a compliance plan in place. The OIG is only promising 
a voluntary plan for home health agencies, and I am going to 
urge that HCFA make a compliance plan mandatory for home health 
agencies in the future.
    The nation really needs a long-term care program. We are in 
turmoil over home health care because it is really becoming, by 
default, our long-term care program, and nobody wants to pay 
for it.
    I was on the Pepper Commission in the 1980s. We tried to 
develop a long-term care proposal, but no one wanted to pay for 
it then either. In Medicare Catastrophic, we moved toward 
better long-term care benefits, but no one wanted to pay for 
it, and it was repealed.
    You, Mr. Chairman, are now co-chair of the National 
Commission on the Future of Medicare, trying to find a way to 
extend Medicare's future, and no one wants to pay for it.
    Rather than sneak a long-term care policy through the back 
door of our acute care Medicare program, we should probably 
propose a long-term care social insurance program, and ask the 
public if they're willing to pay for it.
    Until we do, I feel that Members will just be trying to get 
two ends of the teeter-totter in the air at the same time, 
saving money on one group over here, while this group goes 
down. We won't be saving money, or moving the fulcrum, and will 
continue accomplishing nothing.
    We are just going to disadvantage new sets of providers, as 
we change the formula. Maybe we will be able to do that to the 
overall advantage of the public. I hope so.
    Finally, Mr. Chairman, I would like to enter into the 
record a number of written statements from members on our side. 
Mr. Cardin and Mr. Jefferson had other meetings this morning, 
as did Mr. Sanders and others. I would ask unanimous consent 
that those statements be inserted at this point.
    Chairman Thomas. Without objection, any Member's written 
testimony will be made a part of the record.
    Mr. Stark. Thank you, Mr. Chairman.
    [The following was subsequently received:]
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    Chairman Thomas. At this time, I would ask Mr. Hash, 
representing the administration and the Health Care Financing 
Administration, if he would come forward, and as he is coming 
forward, to tell the gentleman from California his point is 
well taken about winners and losers.
    However, if you could examine a number of the pieces as 
moving parts--and this will be a preface to any testimony, 
including the HCFA testimony--that if you dealt with a formula 
adjustment and you dealt with a per visit structure, and you 
dealt with an outlier approach as, for example, three parts, 
making adjustments in those three could mitigate the loss or 
gain, principally the loss, of someone in a formula shift, and 
so in trying to create a new interim payment system, it may be 
a blend of those three, which would not maximize the advantage 
of any, but minimize the damage, might be and most appropriate.
    With that, Mr. Hash, I believe this is the first time you 
have appeared before the committee. Oh, it's not true? It's the 
second time. Well, maybe this time you'll make more of an 
impression on me. [Laughter.]
    Chairman Thomas. I'm just teasing. Your written testimony 
will be made a part of the record, and you can explain to us 
what your suggested change in the formula is, in your own 
words.

 STATEMENT OF MICHAEL HASH, DEPUTY ADMINISTRATOR, HEALTH CARE 
                    FINANCING ADMINISTRATION

    Mr. Hash. Thank you, Mr. Chairman. I think maybe the reason 
you didn't recall me was that on the previous occasion, Mrs. 
Johnson was the chair of the subcommittee; you were unavoidably 
detained that day, I believe.
    Chairman Thomas. Ah, okay. So it's not Alzheimer's. Go 
ahead. [Laughter.]
    Mr. Hash. No, sir. Chairman Thomas and Congressman Stark 
and other members of the committee, we want to thank you for 
inviting us to discuss with you today the home health payment 
system issues.
    I would first like to associate myself, and the Health Care 
Financing Administration, with the sentiments that you 
expressed, Mr. Chairman, in your opening statement, about the 
intrinsic value of home health services as a part of the 
continuum of care for all Medicare beneficiaries.
    As you know, the Balanced Budget Act included and mandated 
many changes in the way that Medicare pays for home health 
services.
    The new payment systems create incentives to provide care 
more efficiently and to control spending. However, as you noted 
earlier, the prospective payment system for home care must be 
delayed while we address the year 2000 problem with our 
computer systems.
    The Balanced Budget Act established the specific structure 
of the interim payment system that is now in place, until we 
have prospective payment. And it was designed, we believe, to 
assist in the transition from cost-based reimbursement to a 
prospective payment system.
    Like the prospective payment system, the interim payment 
system does have incentives for efficiencies. We are aware, as 
I know you and the other Members are, of the concerns that have 
been raised about the impact of the interim payment system.
    We have tried to make changes within our discretion, to 
ease the burden of the interim payment system.
    Since, as you know, the system may result in overpayments 
to providers, I'm happy to announce this morning that we are 
advising our regional home health intermediaries to put into 
place extended repayment schedules for up to 12 months, for up 
to a year, to make sure that those agencies who have a 
repayment obligation have an adequate opportunity to meet those 
obligations without undue hardship. We are notifying our 
contractors this morning of this new, extended payment policy.
    Secondly, you noted that we recently published an interim 
payment system regulation in which we announced some further 
discretionary steps that we believe will help home health 
agencies.
    We have adjusted the aggregate cost limits per visit and 
the per beneficiary aggregate limits for inflation, as we are 
required to do.
    Secondly, we have updated the data on which we base per 
visit cost limits so they are based on more recent cost report 
data than has been the case up until now.
    Thirdly, we have put forward a more flexible definition for 
determining when a provider is considered a new provider, as 
opposed to an old provider.
    Beyond that, Mr. Chairman, we do have little discretion 
within the law to go further. As you know, we have been working 
with your staff and with the staff of many other members of 
this committee, and of the House and the Senate, to provide 
technical assistance on a number of reform proposals that 
Members are considering.
    We do believe that changes in this area of the interim 
payment system need to enjoy broad support, be budget neutral, 
protect vulnerable beneficiaries, and not conflict with our 
year 2000 priorities.
    The year 2000 compliance activities, as you know, have 
limited the range of options that we can implement at this 
time.
    One of our important tasks recently has been to identify 
those administrative actions that we think are feasible and do 
not increase the risk of not being compliant with the year 2000 
date problem.
    In that regard, we can, as we have been trying to make 
clear, change the per visit and the per beneficiary cost 
limits, as long as we continue to use currently available data.
    We cannot make changes to the current claims processing 
system or create any new databases, or do any programming for a 
new claims processing system.
    For example, we are not able to change the base year that 
is required in the statute, because that would require 
extensive new data gathering and programmatic changes to our 
information systems.
    We could implement a new blend of national, regional, or 
agency specific rates, based on fiscal year 1994 data, which is 
the statutory base for the interim payment system. But changing 
the interim payment system, obviously, may raise budgetary 
concerns.
    Also, if we reduce the agency-specific component within any 
kind of blend, there are both advantages and disadvantages that 
are well-known to you. Agencies with lower costs would tend to 
benefit from such changes, but agencies that serve special 
needs populations with legitimately high costs would experience 
payment reductions.
    An outlier system, to increase payments to agencies with 
more costly patients, is also problematic, but could be 
accomplished within the constraints of our administrative 
limits.
    A case mix adjustment system, as you know, is being created 
for the prospective payment system itself. That case mix system 
will look at the resources involved in providing care and 
accounting for both low and high-cost cases.
    In the meantime, we cannot make outlier adjustments for 
high-cost cases that are based on particular diagnoses or how 
long a beneficiary receives home health services.
    For the time being, outlier adjustments could be made only 
retrospectively, in combination with the settlement of home 
health agency cost reports and could be based only on the data 
that is included in those cost reports.
    We are aware that there has been a proposal for creating, 
perhaps, a block grant of Medicare trust fund dollars to the 
states to pay for outlier cases. We are not supportive of that 
approach.
    We think there are no good data that either we or the 
states would have available to fairly determine which agencies 
should get such funds. We also think such aproposal sets a 
dangerous precedent and raises substantial program integrity concerns.
    Mr. Chairman, we do recognize the challenge of crafting 
interim payment reforms within these constraints. We do, 
however, take very seriously our obligation to work with 
Congress in evaluating all of the options for further payment 
reforms to the interim system to address the concerns raised by 
home health agencies and by Members of Congress.
    Working together, I think we have made some progress in 
identifying what can and cannot be done. We, of course, want to 
continue seeking solutions, and join with you in solutions that 
protect our beneficiaries and the trust funds, and that sustain 
essential home health services.
    I'm happy to answer any questions that you or other members 
of the subcommittee may have, and appreciate very much the 
opportunity to participate in this hearing. Thank you.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you, Mr. Hash. I guess my very 
strong desire, mentioned twice in the opening, didn't catch on. 
I'll do it again.
    The administration, in the discussion and negotiations over 
the BBA, had a policy that they were offering for a change in 
the home health care area. The policy that the administration 
advocated had a blend. Actually, that's probably a misnomer.
    What was it that the administration offered as a formula 
base; do you remember?
    Mr. Hash. I think we were proposing 100 percent agency-
specific.
    Chairman Thomas. I know you were proposing. That's why I 
said it was a misnomer, to be a blend, because it wasn't a 
blend.
    My assumption is that you offered that in good faith, 
believing that to be the most appropriate policy choice among a 
number of alternatives in terms of the mix. In fact, as I 
recall, that was what the Senate carried with it to conference. 
The House had a different position.
    What brought you, in terms of your examination of the area 
at the time, to propose a 100 percent agency formula?
    Mr. Hash. I think, Mr. Chairman, that the rationale behind 
that position was related to a recognition that home health 
costs, on an agency-by-agency and region-by-region basis, vary 
quite considerably and substantially.
    Since we were not able to prospectively identify those 
agencies which had higher costs that were the results of 
inefficiency, versus those that had higher costs with regard to 
the nature of the patients they were taking care of, we wanted 
to ensure that any kind of limits reflected the current 
experience of those agencies.
    Chairman Thomas. If I were to ask you, and you were to do 
as I asked, what is your suggestion for a change in the 
formula, would you want us to go to 100 percent agency-
specific?
    Mr. Hash. I think our position at this point, Mr. Chairman, 
is that we would like to continue working with you and your 
staff to----
    Chairman Thomas. Would you suggest that we go to the 
position the administration initially advocated, 100 percent 
agency-specific, since we didn't follow your advice when we 
wrote the law coming out of Conference?
    Mr. Hash. I would like to tell you that I think we would 
still stand by that position, but I would say this, that given 
how the BBA came out in the end, I don't know right offhand 
what the implications of that would be for the scoring that was 
otherwise associated with these provisions.
    Chairman Thomas. I'm not talking about scoring right now. 
I'm not talking about the artificial world of the budget 
gimmicks that we have to deal with, which frankly impair our 
ability to write good policy, often.
    You now have data, and we are talking about looking at a 
number of options, in changing the formula from the current 75/
25 to a series of different mixes. In fact, in your testimony, 
you indicated that any change beyond the current one creates 
new winners and losers.
    There is no--I love the quote, and I can't remember who 
made it--there is no Lake Woebegone, where everybody can be 
above average, in trying to deal with these restructurings.
    I know you're constrained, but I want to make the point, 
you folks advocated 100 percent agency formula. That really 
didn't begin to deal with the enormous discrepancies, we 
thought, within a state, let alone between states.
    I can't imagine that if you went back and huddled and 
decided that you were going to offer a new position, that it 
would be 100 percent agency specific.
    Mr. Hash. I think, like you, Mr. Chairman, since last 
year's deliberations on this area, we have learned a lot and 
recognized that it is much more complex than we originally 
thought.
    Chairman Thomas. That's why we're here.
    Mr. Hash. Right. And I think that we would definitely want 
to revisit that position of ours of over a year ago.
    Chairman Thomas. We are revisiting. That's why we're 
holding the hearing. We are asking everyone who is coming 
before us to assist us. To simply indicate that you're willing 
to assist us gets us nowhere.
    We do not have enough time before we take this work period 
break to pull together and create a change. What we need to 
have, beginning now, is input from everyone who will be major 
players on what is suggested to be the best avenue today.
    I'm not putting you on the spot. I'm putting me on the 
spot; I'm putting every member of the subcommittee on the spot. 
We have to have a solution and it has to be presented as soon 
as we come back, and it has to mitigate the current problems.
    Now, the administration continues to advocate a budget 
neutral position. When you deal with a budget neutral position, 
there are darn few boxes inside the big box that you can move 
around. It may not mitigate the problem sufficiently to get a 
decent bipartisan support.
    I would ask you, and we will try again, on the per-visit, 
my recollection is that the per-visit change from the 
administration was, in fact, what we have now, wasn't it, 105 
percent on the median, changing from the mean?
    Mr. Hash. I believe that's correct, Mr. Chairman.
    Chairman Thomas. You have to get people to do better 
thanshrug their shoulders. It's 105 percent of the median. The current 
change was, in fact, the administration's advocated change. Would you 
stick with that? Or, based upon our experience and your examination, 
would you suggest a change?
    Mr. Hash. Mr. Chairman, I think what we would commit to, 
and what we have committed to, is that in the time frame you're 
talking about, we need to sit down and actually explore the 
implications of each of these kinds of changes, and come to a 
consensus about what is the most appropriate way that we can 
address the kind of problems that have been identified with the 
current system.
    Chairman Thomas. Okay. What about an outlier policy?
    Mr. Hash. I think we indicated that we could put into place 
an outlier policy that was related to the settlement of agency 
cost reports, and----
    Chairman Thomas. What would that be, specifically?
    Mr. Hash. It would have to be designed specifically on the 
basis of legislation since, as you know, the statute does not 
permit any outlier payments.
    Chairman Thomas. I'm anxious to write legislation, as are 
all members of this subcommittee. what is your suggestion on an 
outlier policy?
    Mr. Hash. We would like to work with you with regard to 
that, Mr. Chairman.
    Chairman Thomas. I appreciate that.
    Mr. Hash. I'm trying to say, Mr. Chairman, that at this 
point, we are exploring, as are you, different options, and we 
would like to continue----
    Chairman Thomas. Mr. Hash, we didn't put ourselves in the 
box. We didn't come in front of this committee and say we can't 
do what we committed to do, and we can't carry out the policy 
we advocated, fought for, and required to be in the law or the 
President wouldn't sign the agreement.
    You folks have reneged on your end of the deal. Now, I know 
that's not a full, fair way to put an argument, in terms of 
Y2K, but we are here because the policy that we guessed at 
wasn't very good. We can't keep guessing.
    There are people out there who are not going to be able to 
be with us in September, and it isn't because of fraud, it 
isn't because of wasteful resources. It is because Congress, in 
its inability to have accurate data, didn't do a good job in 
setting up an interim payment system. We are going to have to 
do that when we come back.
    The reason it is even more critical than it would be 
otherwise is because whatever we come up with has to last for a 
longer period of time, because you aren't going to be able to 
do your job in the time frame that you said you were going to 
do it. It is very difficult for us when, here we go again, no 
specific recommendation.
    Now, I noticed in your written testimony, ``Congress 
required,'' ``Congress required,'' ``Congress required.'' That 
was a mutually agreed arrangement. And as you indicated--and 
the per-visit was exactly what the administration advocated--
you people are equal partners in being where we are today.
    I have a number of proposals I would like to offer to you, 
but there is no sense in going forward, because the answer will 
be, ``We would like to work with you, and we will, over the 
period, look at them, and we will get back to you.''
    What we are trying to do is communicate through our friends 
who do the communication in a greater way, and among our 
members, is we have to have specific changes that minimize the 
downside, that certainly, as best we're able, minimize the 
cost.
    But cost, frankly, at this point, is somewhat secondary to 
making sure that the policy is as good as we can get it, given 
the fact we're going to have to live with it longer than we 
thought, because you're not going to be able to hold up your 
end of the agreement.
    Mr. Hash. Mr. Chairman, as you have noted, we are not able 
to implement the prospective payment in a timely manner. With 
respect to the interim payment system, as you know, we have put 
it in place. We have put the regulations in place, and we are 
operating it.
    We are not in any way saying, or trying to leave the 
impression that we are not open to suggestions and to working 
with you to make changes to address the kinds of problems that 
the members have heard about. We think that over the next 
month, working together, we can find some solutions that we can 
all agree on.
    Chairman Thomas. I'm not saying that you're not open to 
suggestions. What I'm saying is that we have to come up with 
solutions.
    Saying you're open to suggestions sounds as though you're a 
third party waiting for us to come up with the solutions. 
You're supposed to be a partner. You're supposed to be part of 
the solution, not part of the problem.
    We have got to get serious and move forward and make 
statements so people will have some degree of belief that when 
we get back, we will have a solution. That's what we need.
    One last question. There are a lot of people out there 
hurting. There are a number of people who have closed. I 
believe, as I said in my testimony, some of them were mergers, 
consolidations, some may have even closed because of an 
advantage of being a new agency, rather than an old.
    Have any of these agencies applied to HCFA for an exemption 
from the rules, for whatever reason they may provide?
    Mr. Hash. I am not aware of that, Mr. Chairman, if they 
have.
    Chairman Thomas. Is HCFA examining the possibility of 
offering exemptions to any agencies based upon whatever 
evidence they may present to them?
    Mr. Hash. Mr. Chairman, our review of the existing language 
does not provide any authority that we can find for providing 
for exceptions or exemptions, other than the existing authority 
with regard to cost limits per visit.
    Chairman Thomas. I would request that you get back to me in 
writing, once you go back and ask that question directly, if 
there are any agencies that have either been examined for the 
possibility of an exemption or if, in fact, an exemption has 
been granted.
    Mr. Hash. I will be happy to do that, Mr. Chairman.
    Chairman Thomas. Thank you very much. The gentleman from 
California.
    Mr. Stark. Thank you, Mr. Chairman. Mike, we are hearing 
from some home health lobbyists that they would like the 
administration to enforce a moratorium on the IPS system. It is 
my understanding that you cannot legally do that. Is that 
correct?
    Mr. Hash. That is my understanding, Mr. Stark.
    Mr. Stark. Your proposal that all Medicare+Choice plans 
have a compliance plan in place, I think, is excellent.Could we 
not require the same compliance plan for home health agencies?
    There has actually been more concern, I think, about fraud 
and abuse in the home health sector than in managed care. If an 
agency doesn't have a plan to ensure compliance, I don't 
suppose we would want them doing business, anyway.
    Could you implement this compliance plan, and require it of 
home health agencies?
    Mr. Hash. Mr. Stark, I think that is an excellent question. 
As you know, just this week, the inspector general at the 
Department of Health and Human Services announced the 
development of a voluntary compliance program for home health 
agencies. Of course, the inspector general will be testifying 
shortly, and will talk to that.
    Let me just say, in connection with your specific question, 
that we currently have out a proposed rule for conditions of 
participation for home health agencies. We are analyzing the 
responses to that proposed rule.
    Among them will be issues that are raised about various 
pieces or elements of a compliance program. The way we would 
address your concerns, Mr. Stark, would be in the context of 
finalizing our home health conditions of participation.
    Mr. Stark. But not voluntary. I mean making it, the same as 
the requirement for managed care plans, a requirement of 
participation.
    Mr. Hash. What I want to be clear about is that our 
conditions of participation are mandatory on home health 
agencies. What we would be looking to would be to coordinate 
those conditions of participation with the core elements of a 
compliance plan that makes sure that those are addressed 
adequately through our conditions of participation.
    Mr. Stark. I think you are saying that there would be a 
compliance plan required, in one form or another, in the 
conditions of participation, and that makes it not voluntary. 
Is that what I hear you saying?
    Mr. Hash. Yes.
    Mr. Stark. Okay. You are asking us for new legislation to 
better protect nursing home residents. I support that idea. You 
asked for staff to prevent dehydration, malnutrition, 
background checks to keep abusive people away from nursing 
patients, which has been, at least anecdotally, a concern.
    Why don't we mention home health agency staff? If we are 
requiring, or plan to require, background checks to keep 
abusive people away from fragile people in a nursing home 
situation, why should we not require the same thing for home 
health? In home health, the people are even more isolated, 
often, and we are less apt to be able to check on them and 
protect them?
    Would you support parallel legislation that would require 
home health aides and staff to have background checks to keep 
people with a history of crime and abuse from participating the 
program?
    Mr. Hash. Again, we do have, in our proposed conditions of 
participation, requirements, proposed requirements related to 
doing background checks.
    I think the piece that is missing out of that, Mr. Stark, 
is making sure that, in those checks, there is access to a 
national database, because the states, of course, keep 
background records, but that would only reflect adjudications 
that take place within a particular state.
    As we know, some of these people who have had convictions 
move to different jurisdictions, and----
    Mr. Stark. I would like it to be as broad as it could be. 
But let's not defeat the better with the perfect.
    Mr. Hash. No, absolutely. I would say that I think the 
national database is the area in which legislation would likely 
be required. We would be happy to work with you to take a look 
at that.
    Mr. Stark. My time is going to expire, but let me try and 
say--and I have a hunch the chair will indulge me on this--what 
I thought I heard the chairman saying differently.
    Part of why we are here today, and trying to move the 
chairs around on the deck of the Titanic, is because of the 
lack of implementation of the prospective payment system.
    It would seem to me that in any legislative solution, if 
there is to be an outlier program to ease the fringe providers, 
that there is no sense in our trying to develop one only to 
have HCFA subsequently say, ``We can't implement this.''
    You have staff that is better equipped and better 
understands the questions of outliers. You have the data. I do 
believe that the chairman is coming at it the right way.
    It is incumbent on you, I believe, to suggest to us the 
structure of an outlier plan. You may choose to reserve the 
payment amounts until we see what the cost of changing the 
formula is.
    You now have the month of August. Stay home from Martha's 
Vineyard and get us a plan that will work and that you can 
implement.
    We may or may not be able to get the votes to pass it. But, 
there is no sense our sitting down here, going through a lot of 
concern with our colleagues, because in changing this plan, 
there are going to be different winners and different losers, 
and then trying to ease that burden by saying we have an 
outlier plan, and then have you come back in three months and 
say, ``We can't do it.'' I think that is what he is saying.
    If you don't want to give us the exact numbers, at least 
give us the structure, with some certainty that it is something 
you can do. That the data exists, that you have the staff and 
the legal ability to provide these outlier payments.
    If you can't do it, then tell us now. If, for some reason, 
it is just impossible--which I guess is conceivable--then let 
us know.
    But we--as Members of Congress--are saying, ``Well, if that 
doesn't quite work, we'll have an outlier plan that's going to 
ease this burden and that burden.'' We may be dreaming. If so, 
wake us up, please.
    That's all I have to say. The chairman's request is fair, 
and it is incumbent on your staff to follow through. We are 
going to hear later from the people who advise us.
    It may be the Medicare Payment Advisory Commission that's 
going to help us come up with this solution. But, you would do 
it best. Other professionals would do it second best. We would 
be the third, at least, best people to have to devise it.
    All I'm asking is, hear what the chairman is saying and put 
your troops to work to come up with something for us, so we can 
have it early in September.
    Mr. Hash. If I may briefly respond, Mr. Chairman----
    Chairman Thomas. I was just going to tell the gentleman,if 
he had any more questions like that, we can ignore the time light.
    Mr. Hash. I am happy to respond to that, because both in my 
written statement and in my oral statement, I want to make 
clear that, with regard to outlier payment policy, we have done 
a very careful look at what we can do.
    What we have tried to communicate is that we can administer 
an outlier policy, one which would be administered in 
conjunction with the data that is included in the cost reports 
that are filed by home health agencies, so that the actual 
determination of an outlier payment would be made at the time 
of settling the cost reports, it would be made on the basis of 
the data in those cost reports.
    The limitations of that are that there are not in the cost 
reports specific patient diagnostic information, but certainly 
there is cost information. To the degree we are adjusting for 
problems that agencies have with limits through an outlier 
payment, that can be done in connection with using data from 
home health cost reports.
    Mr. Stark. There is no way that you can take certain 
episodes and say that ``We know from experience that these are 
so much more expensive than others that we can prospectively 
adjust for those cost differences.'' You can't do that?
    Mr. Hash. We are unable to do that.
    Mr. Stark. All right. Thank you.
    Chairman Thomas. I would only indicate to the gentleman, 
before I recognize the gentlewoman from Connecticut, that I 
recall that the President had quite an ostentatious liftoff on 
the changes that were made.
    Saying it in slightly another way, for the gentleman from 
California, as well, we are not interested in continuing to be 
on the airplane and find out there was one parachute, and it 
has been used, and you folks are more than willing to provide 
us with some kind of background and green eyeshade technical 
expertise.
    This was a mutually-agreed-upon project, and I expect, when 
we come back, that the Health Care Financing Administration, 
under the Health and Human Services Agency of the Clinton 
administration, will all be out front publicly suggesting 
changes, and be partners in the adjustment period, as you were 
partners in the takeoff period of new program.
    The gentlewoman from Connecticut.
    Mrs. Johnson. Thank you, Mr. Chairman. Both of the 
gentlemen from California have been very polite, I believe.
    I know that you have been working with us over the last few 
weeks. You have been working with some of us over the last few 
months.
    I would have to say I am extremely disappointed in your 
testimony. In my estimation, we are at the time when we need to 
be talking about solutions. If you've done all the work that 
you've done on the outlier program, why didn't you propose 
something today?
    I'm going to be back in my district for three weeks. I'm 
going to be sitting down with my home health agencies. It would 
have been very helpful to be able to say, ``Here is what HCFA 
says.''
    You have the resources, the computers. We sit and look at 
the chart printouts. We can't tell whether the efficient 
agencies are being damaged or the inefficient agencies.
    We know new agencies are coming into the system. In many 
parts of the country, those new agencies are going to be paid 
more than the agencies we are pushing out of business with the 
overall cost increase for Medicare.
    Now, you have far better technical capability than we do. 
You have people with long-term experience in this area, much 
longer term than any of us have.
    You know, you have got to be specific. What outlier policy? 
What size agencies? We need to see, will this help?
    Let me ask you: do you think this is a crisis? Do you think 
the problem we face is serious enough so that, if we don't 
address it, it will have serious consequences for senior care?
    Mr. Hash. We think that the concerns, Mrs. Johnson, that 
have been raised by you and by agencies are legitimate ones. 
They are concerns, and we want to work with you to address 
them.
    Mrs. Johnson. That does not answer my question. There isn't 
a part of Medicare in which there aren't serious concerns, 
frankly. We have so many problems in this system right now.
    What I am saying to you, do you consider the situation we 
face in home health right now a crisis? In other words, do you 
believe that, if we don't do something before we leave here in 
October, that in fact we will diminish access and quality to 
home health for seniors?
    Mr. Hash. We believe that we do need to take action. We do 
not believe at this point that we have the evidence that would 
confirm for us that we have an access problem in home care.
    We have agencies that are still coming in. We have over 170 
applications pending right now for new agencies. So, on the 
access side, we really don't have data.
    Mrs. Johnson. Have you done an analysis of where the new 
agencies are coming in and where the agencies that are closing 
up are going out?
    Mr. Hash. We have some data on that. I would be happy to 
share that with you.
    Mrs. Johnson. I think part of what we ought to be looking 
at is, are we creating an access problem? In spite of the 
larger number of agencies, are we creating deficits in rural 
areas because those lower-cost agencies are going out? I'm just 
speaking from my own limited experience in my own district.
    We need to know that stuff. When we make changes in this, 
we have to have some understanding of are we going to create a 
better answer from the point of view of the survival of 
services.
    So you do not consider this an emergency. You consider it 
serious, but you don't consider it an emergency. I assume from 
that, that if we didn't do anything about it, you would think 
that was not very good, but it wasn't very bad?
    Mr. Hash. We have obviously taken a number of steps on our 
own, because we think it is a serious problem, to address many 
of the problems that, within our discretion, we could----
    Mrs. Johnson. Are the steps you've taken sufficient?
    Mr. Hash. No. I believe that, based on the conversations 
that we have had with you and others, that additional steps 
need to be taken, and we need to take them together.
    Mrs. Johnson. What will be the impact of the 15 percent cut 
going into effect next year?
    Mr. Hash. What will be the impact?
    Mrs. Johnson. With no change.
    Mr. Hash. The CBO estimates that it would remove on the 
order of $2.8 billion in fiscal year 2000, if that was the 
scoring associated with the 15 percent.
    Mrs. Johnson. What is HCFA's estimate of the impact of that 
on access and quality, on home care as a service to seniors? If 
we do nothing, what will be the impact of the 15 percent?
    Mr. Hash. We obviously do not have a specific estimate on, 
agency-by-agency, how it will impact them. It will definitely 
have a substantial impact, because that is a lot of money that 
is being taken out of payments to home care agencies.
    Mrs. Johnson. Would you describe the situation that we 
would face then as serious, very serious, or just concerning?
    Mr. Hash. I think it's very serious, because I think the 
Congress did not intend, nor did we, the 15 percent to be a 
part of the interim payment system.
    Mrs. Johnson. I agree with you absolutely, and I would ask 
that, by the end of this interim, you come back with a plan 
that includes how do we relieve that 15 percent? Frankly, you 
can't do it budget neutral, and you've put that out as one of 
your criteria. You have to get beyond that. That's your 
responsibility.
    Furthermore, you know the whole system. Where is there 
money that is not being paid as well? To whom are we paying 
money that we shouldn't be paying?
    You're closer to the fraud and abuse people than we are. 
Why can't we capture the dollars we need to prevent something 
that is totally irrational from happening, when you've taken 
$2.1 billion more out of an industry than you anticipated.
    Indeed, we anticipated that the baseline would be 21.4 in 
1998 and it's 18.2, but it all comes out to a cut of $2.1 
billion more than anticipated. When you have done that, you 
have to have a way to respond.
    I would ask you that, when we get back, you have something 
concrete, and I would hope that you would have it in two weeks, 
instead of four weeks, so we would have some time in the 
district to talk to our own agencies about it, so we can get 
some--I mean, they are not always right. I understand that. And 
it's going to affect agencies in Connecticut very differently. 
There are going to be winners and losers.
    Unless we can get some hands-on opportunity to evaluate 
that, and to put it with our own ideas and their input, we are 
not going to get a solution that will actually be a step 
forward, and we certainly won't be able to deal with that 15 
percent. It is imperative that we not neglect to relieve that 
date while we are making these changes.
    I hope the next time we meet, it will be concrete, a very 
concrete discussion. I am truly disappointed that I don't have 
the opportunity to go home and go over ideas that are concrete 
in your mind, as well as a few that are concrete in mine. Thank 
you.
    Chairman Thomas. I do want, before I recognize the 
gentleman from Louisiana, to note that the dollar amount that 
the gentlewoman indicated, a $2.1 billion difference in the 
baselines between 1997 and 1998, is partly attributed to--and 
the reason I'm saying this is, I don't want any witness who may 
come later in the program to ascribe that to the immediate 
behavioral changes based upon the programmatic changes that we 
put in.
    Because what did occur between 1997 and 1998, as I 
indicated, was a four-month moratorium on the startup. In 
addition to that, I believe that there was a releasing of the 
wage rates and other items that were built into the 1998 
baseline, that wasn't in the 1997, which neither of those would 
be attributable to the BBA for baseline purposes.
    Now, that is a shorthand way of saying what I said earlier, 
that the stupid budgetary procedures that we have to operate 
are not going to stand in the way of you folks and us 
presenting a better program for Americans who want to use home 
health care, and need to use home health care.
    I want to underscore what the gentlewoman from Connecticut 
said. It is a little difficult for us, trying to look at policy 
when, as the gentleman from California said, you have added a 
new parameter that we have never had before. That is, we come 
up with what we believe to be proper policy, and you tell us 
you can't do it. You've got to be more out front than you have 
in the past, in an advocacy role of options, instead of us 
asking you whether you can do this or do that, and then we wait 
to find out if you can do it or not. We don't have the luxury 
of that kind of a timeline.
    The gentlewoman from Connecticut.
    Mrs. Johnson. Thank you, Mr. Chairman. My red light was on, 
so I didn't go into those details.
    He brings up a very good point. What it means is, that when 
you come back, you need to be able to say, ``We recommend a 
moratorium on any new agencies who are going to come in at a 
reimbursement rate that is above the national average,'' or 
whatever.
    I mean, that might be one of the things we need to look at 
here, that we need to look at the extent to which we do adjust 
to wages. We need to look at what we think.
    You also have access to monthly cost reports. Are we 
beginning to see a slowdown in number of visits? In the GAO 
testimony, that seems to be something we are beginning to see 
now.
    I understand perfectly well that this isn't all attributed 
to a slowdown in the number of visits, but the things to which 
it is attributed are also useful to us. That's the level of 
analysis and assistance we need here so we do the right thing, 
and we actually improve the situation, rather than just sort 
of, in a sense, slog along in a way that we all too often have.
    Thank you.
    Mr. Hash. We are in complete agreement with you on that, 
Mrs. Johnson. We are as frustrated as you are with regard to 
our lack of information about certain kinds of things, but 
whatever we do have, we want to make fully available to you and 
to the other members of the committee.
    Chairman Thomas. I don't think you realize how frightening 
that statement is to us. [Laughter.]
    Chairman Thomas. You people are the keepers of the flame, 
and if you can't do it, we'll sit down and rethink how this 
place operates, and get people who do.
    The gentleman from Louisiana.
    Mr. McCrery. Thank you, Mr. Chairman. Mr. Hash, I think you 
have gotten the message, so I'm not going to beat it to death. 
Let me just go over a couple of things.
    I gather from your statements regarding the severity of the 
crisis, as Mrs. Johnson would put it, that you would not favor 
a moratorium on the IPS, the interim payment system, and that 
you would not favor, as the administration, going back to the 
old agency-specific cost reimbursement?
    Mr. Hash. Mr. McCrery, let me answer that in two ways.
    One is--and this is not whether we favor it or not--one is, 
we could not do it on our own. I want to be clear aboutthat.
    Mr. McCrery. Yes.
    Mr. Hash. The second answer, as to whether we would favor 
it or not, we, as the chairman has pointed out to me 
repeatedly, are partners, not only in the home health area, but 
in the Balanced Budget Act in general. So that if we were to 
recommend a suspension or a moratorium of the interim payment 
system, it would be incumbent upon us to identify how we would 
live up to our commitments with regard to the Balanced Budget 
Act.
    We have not identified, as of this point, areas in the 
Medicare program that have not otherwise been adjusted by the 
BBA, that could provide the resources that would make up for 
the impact of a moratorium.
    Mr. McCrery. So, your answer is, no, you don't want to go 
back, you don't want to put a moratorium on the interim payment 
system; and I hear you saying that the reason you have reached 
that conclusion is that you don't think that this problem with 
the interim payment system in home health outweighs the damage 
that might be done to other parts of Medicare by paying for a 
change in the IPS, they would involve more dollars.
    Mr. Hash. I think we believe that we need to do everything 
we can to make sure that neither access nor quality of home 
care services are unduly interrupted by the payment policies 
that are in place.
    On the other hand, we have an equally strong obligation to 
make sure that, if we take steps in changing the current 
policies, that we do so in a fiscally responsible manner, to 
make sure that we protect the trust funds and sustain the 
program for the current beneficiaries and for those to come.
    Mr. McCrery. Well, let me just get right to the nub of it. 
Would you favor--and you need to think about this, I guess, 
over the recess--would you favor using some of the surplus to 
finance a change in the interim payment system?
    Mr. Hash. As you know, Mr. McCrery, the administration, 
taking direction from the President, has indicated that our 
position is that the surpluses that are occurring in the budget 
should be set aside to deal with the challenges that are facing 
the Social Security program.
    Mr. McCrery. You would not favor using any of the surplus 
to solve this problem?
    Mr. Hash. No, sir.
    Mr. McCrery. Just one more quick question. Did I hear you 
say that in any prospective payment system that you think you 
could come up with--and we hope you do, eventually--you would 
have to have some sort of outlier adjustment as part of that 
prospective payment system?
    Mr. Hash. I actually did not address that in my comments, 
but I believe the statute, with respect to the home health 
prospective payment, makes provision for outlier payments.
    Mr. McCrery. Okay. Thank you. Thank you, Mr. Chairman.
    Chairman Thomas. The gentleman from Nevada.
    Mr. Ensign. Thank you, Mr. Chairman. First of all, one way 
or the other, whether the formulas are adjusted or not, Nevada 
is not really affected that much. I don't really have a dog in 
this fight.
    What I am more concerned about is whether or not seniors 
across the country are going to be getting the type of care 
they need--and hopefully, that's what all of our concerns are.
    I know that it has been expressed to you already that the 
committee is hopefully trying to elicit your help.
    Mr. Hash. Yes.
    Mr. Ensign. We are not trying to, just beat up on somebody 
that is in your position, just for the sake of beating them up, 
but we really do want your input, because of what Mrs. Johnson 
said, that you have the experts, you have everybody that we 
don't have up here.
    We have very limited resources as Members of Congress, as 
this committee, compared to what the administration has. 
Because of that, we do want the answers coming from you, to 
help us with this problem.
    I know you have some areas in which you have a lack of 
information, and that is frustrating, and I guess I can 
understand that. At the same time, if you have a lack of 
information, we have that much more of a lack of information.
    What we need from you, at least, sir, is a positive, you 
know, ``This is what we can do.''
    My question, though, for you, is you say you don't want to 
pay for this out of the surplus. If this ends up being a cost 
to make the adjustments, where does the administration propose 
to come up with the money to pay for that?
    Mr. Hash. As I said before, our view on that is, as we have 
examined what has occurred as a result of the Balanced Budget 
Act, to the Medicare program, we have not been able, to this 
point, to identify areas in Medicare that could be further 
adjusted in terms of payment policies or other kinds of 
adjustments that would yield the kind of money that might be 
necessary to do some of the things that Mrs. Johnson and the 
chairman and others have suggested.
    That doesn't mean we can't take a look, and continue to 
take a look at opportunities. But, as I'm sure you know, the 
Balanced Budget Act, in the aggregate, reduced expenditures in 
Medicare $115 billion over the next five years, and as a result 
of that, other providers and other benefits that are covered by 
Medicare are also feeling important changes and reductions in 
payments of one kind, or limits on increases in payments.
    As a result of those things, we have not yet identified 
ways in which we could take money from another part of Medicare 
for this purpose, but obviously we have not said that we 
wouldn't continue working with the Congress to try to identify 
ways in which resources could be applied to support the kinds 
of changes that are being talked about.
    Mr. Ensign. I guess the question that would follow from 
that, then, is over the next four weeks, before we come back, 
can the administration come back with a proposal that has 
identified some suggestions to us to make changes? Will those 
suggestions have your commitment to come back with where you're 
going to come up with the money.
    Because, if we have identified that there is a problem 
getting the care to seniors that need it, we have to come up 
with solutions. Whether they're popular or not, we have to come 
up with solutions, to make sure that seniors get the kind of 
quality care that they need.
    Mr. Hash. I think it is accurate to say that we would not 
come forward with a proposal that implicated additional 
spending without also being prepared to support a way to do 
that. That is why we need to continue exploring if there are 
appropriate ways to do this.
    As I said, we recognize we would need to be fiscally 
responsible and that we shouldn't make a recommendation that 
implicates additional spending without a way in which to 
finance it.
    Mr. Ensign. Do we have the commitment of the 
administration? Can you guarantee to us, or at least reasonably 
guarantee to us, that when we come back, that we will have some 
of the answers to this, or do you think that there is no way we 
can say that?
    Mr. Hash. I believe that, during the course of the recess, 
there will be a sustained effort on our part and on the part of 
your staff and others, to actually work through this to come to 
some conclusions by the time of your return.
    Mr. Ensign. Okay. Thank you, Mr. Chairman.
    Chairman Thomas. I thank the gentleman. Does the gentleman 
from New York wish to inquire?
    Mr. Houghton. Pass.
    Chairman Thomas. Does the gentleman from Texas wish to 
inquire?
    Mr. Johnson. Thank you, Mr. Chairman. A couple of 
questions.
    One, I'm interested in trying to find out what the problems 
are with the high-cost states of Louisiana, Texas, and 
Oklahoma. I wonder if you've done any investigation in that, 
since they kind of stand out, and since they are all in the 
same district.
    Mr. Hash. I think at least our preliminary assessment of 
the circumstances is that, in some cases, high-cost agencies 
have high costs because the patients they are taking care of 
require more services, longer services, more intense services 
which, of course, means that the costs are going to be higher.
    Mr. Johnson. Yes, but why are they different from some high 
retirement area, like Florida, for example?
    Mr. Hash. If I may, let me finish. I think the types of 
patients definitely has an effect on the cost. At the same 
time, there is ample evidence that in some cases home health 
agencies have not been as efficient as they should be. The 
incentives of our cost-based reimbursement have rewarded 
increased spending.
    It is very difficult to discriminate between higher costs 
related to inefficiencies and the incentives of cost-based 
reimbursement and higher costs related to the kinds of patients 
that are being taken care of.
    Secondly, I think another issue that implicates higher use 
of home care services is the extent to which state Medicaid 
programs provide other kinds of home-based and community-based 
services that are available for patients with those kinds of 
needs.
    In states where Medicaid programs don't provide much 
support for that, Medicare home health is probably much more 
highly utilized, and in states where there is a stronger home 
and community-based service benefit under Medicaid, Medicare 
home health expenditures are lower.
    There are a number of factors that influence whether there 
are higher or lower-cost agencies in a particular part of the 
country.
    Mr. Johnson. Is that supposition, or do you have facts to 
support that?
    Mr. Hash. I think we have information about the character 
of the Medicaid programs in states. What we don't have is 
information that at least adequately discriminates between 
agencies who have higher costs because they have been 
inefficient and agencies that truly have higher costs because 
of the nature of the patients they are taking care of.
    Mr. Johnson. How often, and how many of your home health 
care claims are scrutinized by your fiscal intermediary?
    Mr. Hash. How often?
    Mr. Johnson. Yes.
    Mr. Hash. We have, as you know, regional home health 
intermediaries. The claims that are submitted come in and are 
reviewed for coverage and other requirements of home health 
services, and then they are paid on the basis of interim rates.
    Then, ultimately, at the end of the home health agency's 
cost year, they submit a cost report and we compare the results 
of analyzing that cost report to what we have paid them on an 
interim basis.
    Mr. Johnson. But specifically, do you go into and audit 
those things through your fiscal intermediary?
    Mr. Hash. Yes, we have----
    Mr. Johnson. How many of them do you do nationwide?
    Mr. Hash. I don't have the specific figures or percentages, 
but a percentage of home health claims are subject to medical 
review, both a randomized sample of claims as well as focused 
medical review in agencies that have been identified with 
aberrant utilization or cost patterns.
    There are definitely intensive reviews of claims, selected 
either on a random basis or on a focused basis.
    Mr. Johnson. You don't know a percentage?
    Mr. Hash. I think roughly 3 percent, on average, of home 
health claims are actually reviewed by the regional home 
health----
    Mr. Johnson. Okay. In District 6, which is where Texas, 
Oklahoma, and Louisiana are, are you using that same review 
process? I would suppose, since the numbers are higher, you 
would review more of them. Are you doing that?
    Mr. Hash. I don't have the figures for your region, but I 
would be happy to get them. We would have some average figures 
about the percent of claims that are subject to medical review 
and medical necessity determinations.
    Mr. McCrery. Would the gentleman yield?
    Mr. Johnson. Yes.
    Mr. McCrery. Mr. Hash, in answer to Mr. Johnson's question 
about is it supposition on your part, or do you have any data 
to back up your conclusion about the reasons for some higher-
cost areas, didn't, in fact, HHS conduct or commission a study 
in 1994 on that very subject?
    Mr. Hash. I'm unaware of what study you may be referring 
to.
    Mr. McCrery. Mathematica Policy Research, dated September 
30, 1994. You might want to look at that.
    Mr. Hash. Yes, sir. I'll be happy to.
    Mr. McCrery. Mr. Johnson, in fact, they do have a study, 
which indicates that there are very solid reasons for higher 
costs that vary, region by region. If you would like, the 
gentleman from Louisiana that will testify later today has some 
citations from that study in his testimony.
    Mr. Johnson. Thank you. I appreciate it.
    Mr. McCrery. Thank you for yielding.
    Mr. Johnson. Thank you, Mr. Chairman.
    Chairman Thomas. I would tell the gentleman, if it was data 
from 1994, I would say that the world has changed quite a bit 
since then. But since HCFA is locked into the world of 1994----
    Mr. McCrery. And our interim payment system is based on 
1994.
    Chairman Thomas. Since HCFA is locked into the world of 
1994, and cannot go beyond it, it seems to me 
perfectlylegitimate for people to present data from 1994 in refutation 
of a policy built on 1994, notwithstanding the fact that it may, in 
fact, be much ado about nothing that applies to what we're doing today, 
and that is one of the really sad factors we're dealing with.
    Does the gentleman from Washington, a member of the 
committee, wish to inquire?
    Mr. McDermott. Thank you, Mr. Chairman. I am interested in 
your statement about the Medicaid information and the extent to 
which those services overlap. I wonder how solid that data is, 
and how collated it is. It sounds like there may have been a 
study in 1994.
    I would like to know what kind of data you have, actually, 
because as I look at these states, all the western states--
Washington, Oregon, California, North Dakota, South Dakota--
they have low utilization of home health care, whereas you have 
a cluster of Louisiana, Oklahoma, Texas, Mississippi, Alabama, 
and Tennessee all with almost two or three or four or 500 
percent more average visits.
    There is something going on there that I am interested in--
and I have a theory what it may be, but I would like to hear 
your answer.
    Mr. Hash. I think, in short order, I'm not sure that we 
have a definitive answer for those very large differences in 
expenditures for home care, from region to region, because that 
is at the heart of one of the problems we are dealing with 
here, how to fashion a payment policy that appropriately takes 
into account differences, without locking into place 
differences that we would not want to recognize because they 
flow from inefficiency or fraud or waste or abuse.
    I think, in many respects, the kind of variation, although 
the magnitude is greater here, but the kind of variation that 
you are seeing in home care is often the variation you see 
around the country in terms of the utilization and cost of 
other kinds of health care services. In that regard, home 
health is not fundamentally different.
    What is different is the magnitude of the differences in 
home health expenditures from region to region. And as I say, 
we would be happy to share with you some of the analysis, I 
think, that we have, that looks at the range of factors that 
influence the use of home health agencies, and there are a 
number of them.
    One of them is the presence of home and community-based 
services through Medicaid, but there are other factors, as 
well.
    Mr. McDermott. I think it would be very useful for the 
committee to know that analysis, because Washington state has 
run the most efficient, along with Minnesota, runs the most 
efficient health care system in the country. We're at 30 
visits, whereas Louisiana is at 153. The patients in Louisiana 
can't be 500 percent sicker than they are in Washington state.
    The same is true for most health issues. For example, we 
got no money out of the children's heath initiative, because we 
already cover children up to 200 percent of poverty. So there 
is a real issue there.
    There is a second issue; and I was in the state legislature 
when we did this, in fact was in the middle of the fight. That 
was protecting the certificate of need.
    The state of Washington has a very tight certificate of 
need process. Many states have disbanded that whole process, or 
have a very loose certificate of need.
    I wonder if you can tell me, Louisiana, Oklahoma, those 
states, do they have certificate of need?
    Mr. Hash. I don't know the answer to that. I'm told 
approximately 22 states now have some form of certificate of 
need legislation on the books. I would be happy to get that 
information to you in more detail.
    Sometimes certificate of need covers certain kinds of 
providers, and not others, you know, sometimes hospitals, maybe 
not home health agencies. But we would be happy to get that 
information for you.
    Mr. McDermott. Our certificate of need goes down to kidney 
dialysis treatment stations. We do a whole series of things in 
the state of Washington to deny people. I think one of the 
things that we have to look at is this business of how much 
capitalization there is in a number of states.
    Clearly, if the system is open, when this benefit became 
available under Medicare, or became a big issue, the companies 
went in. They would never get into the state of Washington 
today.
    Mr. Hash. I would agree with you. I think I should 
recognize that the BBA, as you probably know, has put into 
place some additional tools for us to use in terms of more 
strict criteria for provider acceptance or enrollment in 
Medicare.
    Those include things like standards for their 
capitalization, evidence that they actually are serving non-
Medicare patients before we allow them to come in and serve 
Medicare patients.
    These kinds of requirements are going to, we believe, be 
very important at the front end, as a preventive measure, to 
make sure that agencies do not come into the program and serve 
our beneficiaries when they do not meet appropriate standards.
    Mr. McDermott. Do you think it is sufficient to have it all 
done in Washington, D.C., rather than to have it done out at 
the state?
    I mean, the Balanced Budget Act may have been written that 
way, but I wonder if you think it might not be better to put it 
out at the state level, and let them actually look at it.
    Mr. Hash. I think to the degree that states are doing that, 
like Washington, as you've described, we would have nothing but 
support for their efforts to do that.
    We feel we have a responsibility, as the agency that is 
enrolling providers, to make sure that they meet appropriate 
standards, both clinical and quality standards as well as basic 
business standards.
    Mr. McDermott. Okay. Thank you, Mr. Chairman.
    Chairman Thomas. The gentleman indicated he thought he had 
a theory. I didn't hear it.
    Mr. McDermott. My theory is----
    Chairman Thomas. In terms of packaging, I'm requiring 
everyone----
    Mr. McDermott. I was advancing a theory in terms of 
certificate of need. A tightly run certificate of need program 
excludes inefficient and wasteful programs. Actually, in the 
last, since 1994 to 1997, the number of visits in Washington 
state has gone down, and we have only had one agency close, 
where Texas has had 450 agencies closed.
    There are enormous differences in what has gone on around 
the country, depending on the nature of how you let these home 
health agencies start up. We let them all start up, and now we 
have the problem of a lot of them saying, ``We're going to have 
to close down.'' Well, they never should have beenthere in the 
first place.
    Chairman Thomas. I understand. Perhaps, in the August 
break, we can get at that from a potential angle of requesting 
what would occur if you created a moratorium in highly served 
areas, however you might define that, so that you can stop the 
ongoing change, rather than go back and review whether or not 
they should have been there in the first place, because they're 
already there.
    The gentlewoman from Connecticut wanted to ask one 
particular question.
    Mrs. Johnson. I just wanted to ask if you would develop 
some information for us that I think will be necessary for our 
evaluation.
    I need to know whether the increase in health care 
utilization reflects changes in the utilization of other post-
acute care services.
    Are we still seeing home care keeping people out of nursing 
homes? Are we still seeing, and can we document, that home care 
is enabling people to be discharged from hospitals sooner?
    Are we able to say that, in those areas like Louisiana, 
maybe people are in home care longer because they don't have 
congregate living facilities, and is that less costly or more 
costly to the system?
    We need some information that looks at rising home care 
costs in the context of the overall cost of the system. That, I 
think, would be very helpful to us, and play into some of these 
other problems that we have.
    Mr. Hash. We will be glad to try to provide what we can 
with regard to that.
    Mrs. Johnson. Thank you.
    Mr. Hash. That's an important set of questions.
    Chairman Thomas. Thank you, Mr. Hash. I want to underscore 
what my colleague from California said.
    We can sit here dreaming up ideas, hand them to you, and 
you tell us whether you can do it or not. Seems to me you 
changed the rules of the game by not being able to do what we 
say you ought to be able to do.
    We expect some specific model options in the area of 
formula change, in the area of per-visit change, and in the 
potential for an outlier policy.
    Mr. Hash. We look forward to working with you, Mr. 
Chairman.
    Chairman Thomas. I would have preferred ``Yes,'' but that's 
okay. Thank you very much.
    Next panel, please--somewhat a cast of regulars. We welcome 
back Dr. Bill Scanlon, director of the Health Financing 
Systems, General Accounting Office; Dr. Gail Wilensky, Chair of 
the Medicare Payment Advisory Commission, better known as 
MedPAC; and Honorable June Gibbs Brown, Inspector General of 
the Department of Health and Human Services.
    I want to thank all of you. We did take a rather long time 
with our first panelist, but as I think you know well, the 
difficulty with the Y2K problem and the need to come up with a 
solution required us to pursue options perhaps longer than we 
normally would have.
    Your written testimony will be made a part of the record, 
and you may inform us as you see fit of your specific 
suggestions or criticisms or critiques of the home health 
interim payment system.
    Dr. Scanlon.

STATEMENT OF WILLIAM J. SCANLON, DIRECTOR, HEALTH FINANCING AND 
SYSTEMS ISSUES, HEALTH, EDUCATION, AND HUMAN SERVICES DIVISION, 
            UNITED STATES GENERAL ACCOUNTING OFFICE

    Mr. Scanlon. Thank you very much, Mr. Chairman, and members 
of the subcommittee. I am very happy to be here today as you 
review the recent changes in Medicare payment policies for home 
health services and the need to ensure that the spending for 
these services and its distribution under the interim payment 
system are appropriate.
    The goal for a long time, as you know, has been to 
implement a prospective payment system for this benefit, to 
establish and maintain control over the growth of spending, and 
also to better match payments with patient needs. However, in 
enacting the Balanced Budget Act last year, you recognized the 
implementation of a prospective payment system would not occur 
before fiscal year 2000, and an interim payment system would be 
needed to initiate control over payments.
    As the interim payment system will be in place now longer 
than you intended, issues with regard to its adequacy and 
appropriateness become more troubling, though they might not 
have been so in the short term. In particular, there are 
questions about whether the per-beneficiary limits will 
excessively restrict overall payments and about the relative 
stringency of these limits among agencies.
    One thing we should recognize is that the per-beneficiary 
limits were established using the average number of visits per 
beneficiary in the 1993-1994 period.
    Most of the rapid growth we have witnessed in the number of 
visits per beneficiaries since 1989 had occurred by then, and 
would be reflected in the data used to establish these limits.
    Evidence from both our past work and that of the Inspector 
General have indicated that utilization levels in recent years, 
to some degree, have been inappropriately inflated by services 
provided to some beneficiaries who didn't qualify for the 
benefit, by some beneficiaries receiving unauthorized visits, 
and even by, instances of visits being billed but never being 
delivered.
    Consequently, concerns about the overall spending under the 
interim payment system may be unnecessary. Ensuring, however, 
that the limits reflect appropriate costdifferences across 
agencies is a more difficult issue to address.
    Blending historic agency-specific and regional payments to 
determine the per-beneficiary limits was intended to recognize 
that significant variation in costs across agencies and 
geographic areas exists, and to reduce some of the extremes.
    How much agencies spent in the past does provide some 
indication of the types of patients they serve. Although cost 
data are readily available, they are admittedly very crude case 
mix adjusters, because cost differences can reflect multiple 
causes.
    Agencies can have higher costs due to inefficient 
practices, and then they will have a higher per-beneficiary 
limit. Conversely, if an agency had a history of managing its 
costs and controlling its visits to each patient, its per-
beneficiary limit will be constrained.
    Unfortunately, examining costs alone cannot reveal whether 
an agency serves a more needy patient population or operates 
inefficiently. As a practical matter, therefore, in order to 
protect those serving a more complex mix of patients, other 
inefficient agencies may be rewarded.
    The per-beneficiary limits based on 1993-1994 data also may 
prove problematic for some agencies if external factors have 
resulted in significant changes in their costs since then. An 
example would be a shift in the mix of patients that might 
accompany a change in the number of providers in their local 
market which would then have an effect on the clients available 
to other agencies.
    An even more widespread impact could accompany a state's 
adoption of a so-called Medicare maximization policy. Through 
these policies, some states have attempted to ensure that 
Medicare is billed first, instead of Medicaid, for visits to 
patients who are eligible for both programs. This increased 
Medicare billing may not be reflected in the per-beneficiary 
limits when states have recently implemented such policies, and 
their agencies may be facing limits that are tighter than 
appropriate.
    Unfortunately, attempting to calibrate the per-beneficiary 
limits to reflect legitimate differences among agencies without 
data, on the causes of those differences, inevitably leads to 
potential underpayments and overpayments. A well-designed 
prospective payment system with an adequate case mix adjustment 
will address these concerns and provide Medicare with better 
tools to control its spending.
    We believe, however, that the development of the 
prospective payment system for home health will be a much 
greater challenge than prior efforts to create one for 
hospitals or skilled nursing facilities.
    For home health, for example, defining what is the unit of 
service, which most conceive of as an episode of care, should 
contain may prove very difficult. At present, no consensus 
exists on what constitutes a needed Medicare-covered visit or 
what a visit should entail, basic information essential to the 
appropriate definition of an episode and the design of 
prospective payment.
    We need a candid and realistic assessment of when the 
prospective payment system and adequate accompanying oversight 
mechanisms can be implemented. Depending on the delay, it may 
be important to consider how to make agency-specific 
adjustments to the limits to better account for appropriate 
variations in current costs. Potential adjusters that could be 
developed include information on the proportion of Medicare 
patients that are Medicaid eligible as well, patient length of 
stay, and the proportion of beneficiaries that were recently 
hospitalized. Research that HCFA currently has underway to 
develop the prospective payment system could very well guide 
this kind of an effort. Without adjusting the limits, the 
extent of overpayments and underpayments is likely to increase 
over time.
    Let me say in conclusion that you have taken very positive 
steps in giving HCFA the tools to maintain control over the 
growth of home health spending. The goal should be to move as 
quickly as possible to take full advantage of those tools. In 
the meantime, we need to remain attentive to the effects of the 
interim system and seek to ensure that agencies are paid 
appropriately for the mix of beneficiaries that they serve.
    Thank you very much. I would be happy to answer any 
questions that you may have.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you, doctor.
    Dr. Wilensky.

STATEMENT OF GAIL R. WILENSKY, CHAIR, MEDICARE PAYMENT ADVISORY 
 COMMISSION, ACCOMPANIED BY STUART GUTERMAN, DEPUTY DIRECTOR, 
              MEDICARE PAYMENT ADVISORY COMMISSION

    Ms. Wilensky. Thank you for inviting me here to testify. I 
am here as the chair of the Medicare Payment Advisory 
Commission, and I have with me Stuart Guterman, who is the 
deputy director of the commission.
    You have heard in some detail about why the prospective 
payment system was adopted as part of the Balanced Budget Act, 
and I'm not going to review that with you. It is in my written 
testimony.
    You have also heard a clear description of what it is we 
have moved to in the interim, in terms of the interim payment 
before the time the prospective payment system is ready, and 
I'm not going to go through the detail of that, as well.
    I want to mention a couple of the provisions, the effects 
of the provisions, in terms of what we know about the general 
direction of the effect, and then make some suggestions about 
where we might go from here.
    Because of the introduction of not only a per-visit cost 
limit, which had been part of the prior payment strategy, and 
also the change, as you know, going from 112 percent of mean 
cost to 105 percent of median cost, but also including, now, a 
per-beneficiary limit, as well, which, as you have mentioned, 
is based on 1994 data, we have set up a stress in terms of the 
kinds of effects that this interim payment system will have 
will differ according to the type of patients that will go to 
the agencies.
    In general, because of the system that was devised, what we 
know is that those agencies which tend to have patients that 
have a limited number of high-cost visits, like after a 
hospital, for example, will have most of the effect, will come 
from the per-beneficiary cost limit, because they don't have a 
lot of visits, and the ones they have are very costly.
    It appears, for example--and since you have Members up here 
from these states--that Louisiana is, at least in large part, 
affected more by the cost limits than, say, by the numbers of 
visits.
    On the other hand, if you have agencies that serve people 
with a lot of chronic conditions, who have a lot of visits, 
which perhaps, knowing a little bit about the demographics of 
the country, is more associated, we think, with a place like 
Connecticut, they are much more likely to get impacted by the 
per-beneficiary limit rather than the visit limits, for cost.
    These were not unreasonable additions to bring to the 
payment. The problem is, we don't know what is going on in 
these visits, and we don't have information about case mix.
    The basic problem that you are now going to deal with is 
that you are going to try to make changes that either will 
increase costs, and then the issue is can you negotiate a way 
to pay for some additional money, or that will create winners 
and losers.
    You are fundamentally going to be left in the position of 
not knowing very well, at least, whether the money that you 
shift is going to more efficient agencies or going to agencies 
who have less sick or less complicated cases.
    My first plea is that, while we come up--and we will, 
certainly, at MedPAC, be glad to assist you in any way; we 
have, I know, been providing some analysis during the last few 
weeks, for some of the Members' requests--is to start working 
on getting better information.
    It doesn't have to be perfect information. It is certainly 
possible to have approximation of information early on at the 
same time we start instituting some more specific efforts to 
get what goes on in the visit and to get case mix information, 
so that we can move off the problem of not knowing whether 
agencies have low costs because they are efficient, or whether 
they have low costs because they have less sick patients.
    The additional issues which we had raised as part of our 
recommendations, which you may want to think about, depending 
on what other steps you take in order to fix the problem that 
you are now concerned about, which is whether too much money is 
coming out of this system and more impact may be occurring in 
terms of some of the agencies, is whether you want to consider 
the recommendation we made with regard to a modest co-payment 
on the part of beneficiaries, subject to an annual limit, and 
secondly, after 60 visits, to have an independent case manager 
review the case plan for the beneficiary so that the big 
spenders of home care money--that is, the people who have over 
100 or 150 visits--who are a small part of the population, 15, 
20 percent, but who account for most of the money in the 
system, know that they are getting an independent assessment 
about whether they have the right plan of care for them, not by 
somebody who is related to the home care agency, and not by the 
physician who has been asked to sign off, because there is a 
lot of pressure that that physician is frequently put under.
    So my plea, again, as you go forward and try to deal with 
the uncertainties of not knowing why these differences occur, 
is to start early, soon, as soon as possible, on collecting as 
good data as you can in the interim, and then better data over 
time. It will help resolve these problems, which are obviously 
causing you and your constituents a lot of concern.
    Thank you. I will conclude my oral presentation at this 
point.
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    Chairman Thomas. Thank you very much, Doctor.
    Inspector General Brown.

STATEMENT OF JUNE GIBBS BROWN, INSPECTOR GENERAL, DEPARTMENT OF 
                   HEALTH AND HUMAN SERVICES

    Ms. Brown. Good morning. I'm June Gibbs Brown, Inspector 
General of the U.S. Department of Health and Human Services.
    I am pleased to be here to talk about our recently released 
voluntary compliance guidance for the home health industries. 
The guidelines are the latest in a battery of remedies 
addressing the extraordinary vulnerabilities inherent in the 
Medicare program.
    Indeed, the home health program is remarkable in its 
vulnerabilities. In the past we have found payment error rates 
of 19 to 64 percent in individual home health agencies, and are 
40 percent across California, Texas, Illinois, and New York.
    Improper payments were made for unnecessary services, 
patients who were not homebound, inadequate physician 
certifications, and services not provided. Numerous 
investigations have revealed instances of outright fraud.
    A recent example is a former owner of a now defunct Texas 
home health agency who pled guilty to conspiracy to defend 
Medicare. She was charged with submitting false cost reports of 
more than $3.6 million.
    Not all of Medicare's improper payments are due to fraud, 
though. They probably run the gamut from innocent errors, 
inadequate management, financial irresponsibility, 
recklessness, abuse, and fraud. Whatever the underlying 
motives, the result is the same--significant loss to Medicare, 
and American taxpayers.
    Fortunately, most of the vulnerabilities are being 
addressed through the combined efforts of the Congress, the 
Health Care Financing Administration, and the home care 
industry itself.
    Many potential solutions were incorporated into the 
Balanced Budget Act of 1997, as well as in the regulatory and 
administrative initiatives of the Department of Health and 
Human Services.
    To add to the remedies already available earlier this week, 
on August 4th, I released the most recent in a series of 
compliance guides entitled Compliance Program Guidance for Home 
Health Agencies. This guidance was prepared in cooperation with 
the Health Care Financing Administration, the Department of 
Justice, and the representatives of the home health industry.
    It is offered to assist home health agencies in developing 
specific measures to combat fraud, waste, and abuse, as well as 
in establishing a culture of integrity that promotes 
prevention, detection, and resolution of misconduct. Copies 
have been provided for members of this subcommittee.
    I wish to emphasize that this guidance is voluntary. We 
also encourage home health agencies to adapt these principles 
to their particular needs and circumstances. I am pleased to 
see that the home health industry has responded favorably to 
this guidance.
    We have identified seven fundamental elements to an 
effective compliance program:
    First, standards of conduct and written policies and 
procedures that promote the home health agencies' commitment to 
compliance and address specific areas of potential fraud. The 
risk areas include claims development and submission processes, 
cost reporting, and financial relationships with physicians and 
other health care professionals and entities.
    Second, the designation of a compliance officer, and other 
appropriate bodies, responsible for operating and monitoring 
the compliance program.
    Third, regular, effective education and training programs 
for all affected employees.
    Fourth, a hotline or other reporting system to receive 
complaints, and procedures to ensure the anonymity of 
complainants, and to protect them from retaliation.
    Fifth, a system to respond to allegations of improper 
activities and enforce appropriate disciplinary action.
    Sixth, audits and other evaluation techniques to monitor 
compliance.
    Seventh, finally, the investigation and remediation of 
systemic problems, as well as policies to prevent employment 
and retention of sanctioned individuals.
    One advantage of the compliance guidance is that it 
cultivates reform from within, rather than outside the home 
health agencies. I believe that each agency itself is best 
positioned to guarantee the integrity of its operation.
    Like all recent reforms, the guidance is just the 
beginning, a kind of structure to be filled out and implemented 
by home health agencies. We are far from finished with the task 
of reforming home health, and we cannot drop our guard.
    We hope that the new initiatives of both the Congress and 
the administration, coupled with the Compliance Program 
Guidance for Home Health Agencies, will go a long way to 
solving the serious problems that have plagued Medicare's home 
health benefit.
    This concludes my prepared statement, and I will welcome 
any questions you have.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you, Ms. Brown. You indicated a 
couple of examples, and I know in your written text there are a 
number of examples, and they seem to be, a significant 
percentage of them, from one state.
    I know that when you launched your Operation Restore Trust, 
you did so initially in just five states, I believe.
    Ms. Brown. That's right.
    Chairman Thomas. What was the rationale for choosing 
Florida, Illinois, Texas, New York, and California?
    Ms. Brown. Those states represented a cross-section of the 
country, and a great deal of the Medicare money was spent in 
those states. (so) We felt that we could get some experience in 
looking in those concentrated areas and then expand to the rest 
of the country.
    Chairman Thomas. The assumption would be that the bulk of 
the examples that you would have available would be atypical, 
because you drew those states initially?
    Ms. Brown. That's right. They aren't typical of the 
proportion of problems in those states, but only that we have 
finished those at an earlier point in time.
    Chairman Thomas. I wanted to make that point, and that as 
you do the nationwide examination, unfortunately, you'll have a 
number of examples that you could present from every state----
    Ms. Brown. I believe so.
    Chairman Thomas [continuing]. Unfortunately, in the Union.
    Dr. Wilensky, this problem is even more difficult for us 
than some others that we have tried to deal with, because of 
the computer situation at HCFA, but also the game that 
apparently a majority of my colleagues believe is important to 
play, and the administration indicated it was going to be, 
perhaps, a requirement as well, and that's budget neutrality.
    The difficulty I think some of us are having is that we 
could not believe the lack of information that had been 
collected, or the usefulness of the lack of information that 
had been collected, when everyone knew this is one of the 
fastest-growing expenses in the Medicare area, so that a lot of 
what we've been doing, frankly, is guessing.
    We are now at the stage where we are examining, if you 
will, our first guess, and we need to look at options.
    How critical is it, in your opinion, as we look at options 
to ease the transition for a longer period of time, now, as Dr. 
Scanlon indicated, to try to do this in a revenue neutral 
environment?
    Can you move enough parts around to have any kind of a 
meaningful impact in a revenue neutral environment, or should 
we look at possible additions of modest sums, or significant 
sums, in making these adjustments?
    How critical is it to do it with no new money, or how 
critical is it to do it minimally right for the period we are 
going to have to live with, with some addition of funds?
    Ms. Wilensky. If you knew more about either appropriate 
clinical standards of care in home care, and more importantly, 
the case mix that various agencies had, it might be possible to 
do this in a budget neutral way, but the fact is you don't know 
that.
    So you will be flying blind. You can change the mix of 
money, and all you will know is that there will be winners or 
losers. You will have no reason to assume that the winners are 
the good guys or the agencies that have sicker patients and the 
losers are the ones that are profligate in their funds.
    Given that that's the case--and again, I implore you, at 
one step, to try to engage in activities that will fix that--
you obviously can make a case for putting a little more money 
in, both on the grounds that the surplus seems to be bigger 
than what was being anticipated initially, and that the 
slowdown in spending is greater than was anticipated in the 
BBA.
    As you know better than I do, that does not give you any 
automatic call on those funds, but it is something that 
indicates more of an impact than was scheduled, not 
surprisingly. That, of course, happened at the beginning of PPS 
for hospitals, as well. The very first year was a bigger 
impact.
    Chairman Thomas. I'll borrow the gentlewoman from 
Connecticut's question to HCFA.
    Do you consider the situation we are in, in dealing with 
the home health care, and the ability to maintain adequate home 
health care, an emergency situation? Is it a very serious 
situation? What kind of a context should we be examining this 
in, in terms of immediacy of need for action and degree of 
action?
    Ms. Wilensky. I don't think there is any indication yet 
it's an emergency. It is somewhere between serious and very 
serious. More money is coming out than we anticipated, and 
that's a fact.
    My understanding is that there is a net increase of 
agencies, home health care agencies. There is not any available 
evidence that there is either a big dropoff in agencies or an 
access problem for the seniors themselves.
    The difficulty is, by the time we actually can see either 
of those, we will have caused a problem. If you want to take 
the first step and say substantially more money is coming out 
of the system than we anticipated, we are at least setting 
ourselves up for a problem, although there is no documentation 
yet that we have one. So it is, at the very least, a serious 
problem.
    Chairman Thomas. As I indicated at the beginning, we can 
talk about examining the blend, but because the variation, 
intrastate, is as great or greater than the variation 
interstate----
    Ms. Brown. Correct.
    Chairman Thomas [continuing]. It is extremely difficult, 
just in adjusting the blend, to really deal with the problem.
    We could deal with the per-visit. Since we changed it from 
the mean to the median, we can play with the percentage in that 
area.
    The outlier has been mentioned, just for those who don't 
have the ability to deal with a case mix, either pre or post, 
and simply deal with the reality that some folks fall outside 
it.
    Would those be the universe of appropriate examinations? 
Now, I know you mentioned a co-pay, and my colleagues here--
I've discussed it with them--are not as enamored with that. 
Obviously, that involves a slight behavioral change in terms of 
choices that are made.
    You indicated a limit, which would limit the impact on 
lower income. Of course, Medicaid takes care of that bottom 
end, anyway.
    Have you looked, at all, along the lines of a moratorium in 
areas where there clearly appear to be a sufficient number of 
agencies, or is that a policy that probably would not be looked 
at if you could deal with it in terms of the blend, the per-
visit, the outlier?
    Ms. Wilensky. A moratorium on going forward with the 
payment, or----
    Chairman Thomas. No, a moratorium on new home health 
agencies in those areas where--using some criteria for 
adequateness or number of agencies.
    Ms. Wilensky. We haven't. At least, I am not aware of it. 
Personally, I don't think that having a moratorium on a number 
of agencies is the way that I would recommend going forward to 
try to solve this problem.
    Chairman Thomas. Thank you very much. I believe this is the 
first statement that anybody has made today that indicates that 
one option probably is one that we ought not to pursue. Thank 
you very much.
    Ms. Wilensky. You're very welcome. Let me tell you, there 
is a blend that I was having a brief discussion on in terms of 
what will be arbitrary changes in blends that might provide 
some assistance.
    That is, rather than the agency national as the primary 
blend, looking at the differences in the number of visits that 
are skilled nursing versus home health care aides, as a type of 
a blend on the grounds that that may be picking up some 
differences in the case mix.
    The point is, it is possible that, having MedPAC staff work 
with some of your staffs, that we might be able to come up with 
some short-term interim fixes to try to proxy betterthan what 
we have now in terms of the intensity of need.
    Again, I plead with you to try to make sure you have either 
legislative authority or other pushes to get going on the data. 
It is impossible not to fly blind without it.
    Chairman Thomas. Is our time frame that I tried to 
indicate--doing a lot of heavy lifting over August, so that 
when we come back in September, we will have to the best of our 
ability, the solution that is the best that we can provide on a 
bipartisan basis--an appropriate time frame?
    That is, we need to respond as soon as possible, 
notwithstanding the desire the longer we go the better info we 
have?
    Ms. Wilensky. The fact is, you don't have much information, 
and you're not going to have it in the next few months, so you 
might as well come up----
    Chairman Thomas. Just let me interrupt you, and underscore 
that, in looking through what we had mandated, it isn't until 
October 1, 1998 that the home health care agencies are required 
to specify by code to the Secretary the length of the service 
visit in terms of 15-minute increments, so we don't even know 
the length of the visits.
    Ms. Wilensky. And we know, of course, nothing about the 
content.
    Chairman Thomas. The content of the visits. That kind of 
underscores what we do. The point is, though, that if we wait 
longer, we are not really going to have any more resources 
available to us for making a better judgment on the changes 
that might be needed.
    Ms. Wilensky. In terms of the short-term options, I think 
you will have as much as you're likely to have when you come 
back in the fall, and as you know the calendar as well as I do, 
if you don't do something then, it will be at least until the 
springtime before you can do something. I don't know that you 
will have substantially greater substantive information in 
terms of intensity or content by that time.
    So my recommendation is, if you re interested in moving 
ahead, moving ahead in September is as appropriate as waiting 
another five months.
    Chairman Thomas. My assumption is you believe that we 
should be interested?
    Ms. Wilensky. I think that, because of the magnitude of the 
change, the potential for doing things you didn't intend is 
greater than if it had been about the amount you expected.
    Chairman Thomas. Thank you very much. Mr. Stark.
    Mr. Stark. No questions.
    Chairman Thomas. The gentlewoman from Connecticut.
    Mrs. Johnson. Thank you. I was interested in your comments 
about a moratorium.
    You know, the Dartmouth studies show, in their comparison 
of Boston and New Haven, that the availability of services 
definitely influences the amount of services delivered, and 
that that amount can't always be correlated with quality of 
care.
    So it does seem to me that, first of all, we certainly can 
look at the kinds of savings that would be realized if high-
resource, high-utilization regions were constrained to a lower-
resource, lower-utilization pattern. Look at New Haven and 
Boston. You know, there are some things that you can learn.
    The question I would ask you is twofold.
    First of all, what do we know about the payment rates of 
the new agencies? Do we know that, on average, or whatever, 
that the new agencies coming in are coming in at higher 
reimbursement rates--I think this is generally true in my part 
of the country--as opposed to the older agencies that are 
there?
    If that is the case it is an overall loss to Medicare to 
have older, lower-cost providers leave the market and higher-
cost new providers come into the system.
    We need to look at who is coming in, what is it costing us, 
who is going out, and are they going out because they are low-
cost, efficient providers, because that is not in our interest. 
In that case, we might want to have a moratorium in areas where 
there is already a high level of providers.
    Then I think this issue of looking at what are the other 
services we are paying for in those areas is important, so that 
we can set home health care costs in the context of other 
services.
    I would hope that you wouldn't dismiss the possibility of a 
targeted moratorium until PPS goes in, as one of the possible 
tools in constraining costs and, frankly, freeing up the 
dollars we definitely need if we are going to solve this 
problem.
    If we are not going to use any of the surplus, then there 
has to be--and you can't solve this problem budget neutral. 
Then you're just going to shift around the pain. If you're 
going to have some new money to put in, you're going to think 
about where it's going to come from.
    It seems to me a moratorium in the dense, high-resource 
areas has some merit.
    Ms. Wilensky. You raised several issues. Let me try to 
briefly respond to them.
    There is some dispute about whether availability of 
services drives demand. If it did, we wouldn't have hospitals 
at 60 percent occupancy. It is much more complicated than just 
if they're there, people will come.
    The second issue is that variations exist all over 
Medicare, as they do all over health care, and to try to 
respond to them in one sector without looking at variations in 
other part of Medicare is very, I think, dangerous.
    We have enormous variations in the service of care--Mr. 
McDermott raised this earlier--in terms of Florida and 
California versus the state of Washington and the state of 
Oregon and the state of Minnesota, for example.
    The whole issue of should we narrow the amount that 
Medicare allows for in terms of variation in practice style, 
and at which level should we aim for, is a serious issue, one 
that MedPAC and its predecessor commissions dealt with, and I 
think it is an important issue for the Congress to deal with.
    We have to be very careful to look at home care as the only 
service in which you are really doing, because the fact is, 
states differ in terms of how much home care they use vis-a-vis 
physician care and hospital care and skilled nursing care, and 
I think to put a moratorium in one area alone is to ask for 
difficulties, because it's not the broader context.
    Finally, if it is really only the concern that new agencies 
are getting paid at higher rates and some of the older agencies 
that may be exiting, although we don't know much about older 
agencies exiting and whether they are efficient, you could, of 
course, pay them at the lower cost. You can have the payment 
for new agencies at whatever payment level you want.
    Rather than put a moratorium on, if you think that the 
newer agencies are getting paid too much, there are ways tofix 
that.
    Again, I spoke, obviously, not on behalf of the commission, 
in response to Mr. Thomas's comment, but on behalf of myself as 
a market economist, and I don't think moratoriums are a good 
way to go.
    Mrs. Johnson. I appreciate, particularly as a market 
economist, why you would not be interested in moratoriums. But 
we are talking about an interim between now and a payment 
system that we think will be more sensitive to the product that 
we're trying to deliver and the price of that product.
    There is a macro difference. I mean, there are certificate 
of need states. Mine happens to be one, too.
    To look at the configuration of the services, not just home 
care, but the others, in those states versus other states--we 
certainly did find, when we looked at specialty care and 
Medicare, that there was a very different use of specialists 
and number of second, third, fourth, and fifth opinions in 
areas where those services were easily available.
    It does seem to me, at a time when we are under such 
enormous pressure, that it is at least something that we have 
to look at. Maybe we don't call it a moratorium. Maybe we look 
at it in the certificate of need context.
    Ms. Wilensky. Of course, MedPAC would be glad to respond to 
any request for an analysis on this issue that we would have.
    Mrs. Johnson. Thank you.
    Chairman Thomas. Thank you very much. Does the gentleman 
from Maryland wish to inquire?
    Mr. Cardin. Yes. Thank you, Mr. Chairman. I thank the 
panelists for their testimony.
    Dr. Wilensky, I accept your characterization that the 
situation is somewhere between serious and very serious, as it 
relates to the entire circumstances on home health 
reimbursement under the interim payment system.
    As related to me, I think it has reached the critical or 
emergency stage in some places. Let me just give you a few of 
the examples that have been given to us, and get all of your 
input here.
    There are many areas that, because we are using historical 
agency-specific costs, to such a high degree, that where 
agencies has already brought down the costs, they are being 
more adversely impacted than in those areas of the country that 
have had higher utilization and costs.
    In those areas, we have reached the critical point, because 
of the reliance on the agency cost data, and it cries out for 
some change in the mix immediately.
    We also have problems in rural areas, that the per-visit 
limit is so conservative, that there is need for a change there 
if we're going to be able to provide services in rural areas, 
where the number of patients that you can see in a given day is 
much less than in other areas.
    Thirdly, for those agencies that have made special efforts 
on difficult patients, the outliers, having some form of an 
outlier payment seems to make some sense on an emergency basis, 
in order to be able to continue this type of service.
    I agree with Mrs. Johnson that to try to do this without 
putting more money into the system is going to be impossible.
    First of all, as you pointed out, Dr. Wilensky, the dollars 
have already been stretched more than we thought they would be, 
and there is at least some indication that there we have gone 
too far.
    Secondly, the politics of trying to deal with taking money 
from someone to pay others just won't work. We're going to have 
to come up with some new money in this area.
    My point--and I would like to get all of your reactions, if 
I could--is that I think we've passed the very serious 
situation, as it relates to these three specific points in some 
agencies and that, if we don't take action quickly, we do run 
the risk, in areas of our country, of seeing services actually 
be eliminated and not available.
    Ms. Wilensky. There is some question that, if you wait 
until you can document the problem, you will, in fact, have 
gone much farther than I believe that you wish to.
    On the other hand, we clearly, as I said, don't have any 
national system, and it is much easier to do it if it is not 
budget neutral, particularly when you don't have very good 
information on which to take money out of the pie.
    The outlier payment, I think, is actually not one I have 
given a lot of thought to. Personally, I think it is one, 
particularly if you were to demand more information to justify 
the outlier payment, that might help in the short term, while 
we are getting better data.
    It is a very skewed distribution of monies in home care. As 
I mentioned earlier, something like 15 percent of the patients 
use, or the beneficiaries, use more than 150 visits, but they 
account for a very large amount of the dollars.
    That means that you actually might be able, depending on 
whether you used number of visits or the cost per visit, or 
either, as an outlier potential, to demand supporting data for 
these cases, so at least you would have a little better sense 
that, in the outlier payments, that you had some idea about 
what you were paying for, although you didn't know compared to 
what.
    I think that might well be a way to start, while we go 
collect better data.
    Mr. Cardin. Dr. Scanlon, if we wait and do nothing, what is 
the risk here? Are there going to be agencies that are going to 
close? Are there going to be services that are not going to be 
provided?
    Mr. Scanlon. Both could potentially happen. I think that, 
as you have indicated, the issue is localized. It applies to 
particular agencies; it may apply to particular areas, and 
that's where the concern needs to be.
    As Dr. Wilensky indicated, we have been operating without 
information. We have a payment system that is designed with 
very few refinements, and it impacts unevenly across agencies.
    For the agencies that are seriously affected, some are 
critically affected, and they believe there is a crisis today, 
not at some point in the future.
    More generally, with regard to access and quality of 
services overall. I agree that we are not at a crisis point 
now.
    Mr. Cardin. Could any of you help me? On the three areas 
that I mentioned, am I right on those three areas to be 
concerned about?
    Is there a priority within those three that is more 
critical than others? Are we in more danger in rural areas, 
more danger on difficult patients, or will there be more 
problems because we're using the historical cost in the 
formulas? Is there any relative concern here?
    Ms. Wilensky. Those are the areas that you would think to 
look at. Again, to the best of my knowledge, there is no 
information suggesting we have a problem now.
    The rural areas we worry about, because of the density,lack 
of density; the very sick patients, because in this and other areas, 
health care is so concentrated. Although there has been so much rapid 
growth and spending in this area that it is hard to feel like, early 
on, this is an industry that has been strapped for funds.
    Again, there are probably some agencies in some parts of 
the country that are very low-cost, and that will find 
themselves in difficulty. I can't give a response whether or 
not, in order to protect them, to put in money in a generalized 
way.
    Mr. Cardin. Thank you, Mr. Chairman.
    Chairman Thomas. Thank you. The gentleman from Louisiana.
    Mr. McCrery. Thank you, Mr. Chairman. Dr. Wilensky, I would 
like for you to explore with me--because I know you have, in 
your various capacities over the last few years, looked at 
this--explore with me the possibility of instituting a co-pay 
for home health services, or instituting an option for home 
health agencies to impose a co-pay, if they so chose. Do you 
have any thoughts on that?
    Ms. Wilensky. Yes.
    Mr. McCrery. And if possible, a partial solution to the 
problem we find ourselves in?
    Ms. Wilensky. I believe in a co-pay for two reasons, 
particularly one that is rather modest, and that is subjected 
to an annual limit, so that, for the small numbers who have a 
great number of visits, it is not imposing a major burden.
    In the first place, I think that it will help in some of 
fraud detection. It focuses attention in a way that doesn't 
always occur when you have a free service, so I think it would 
assist in some of the activities that the inspector general has 
been concerned with.
    In the second place, it gives you a little money. That is, 
if you allow for a co-pay, either on an optional or a regular 
basis, it would give you a little more money to distribute 
elsewhere, and it will have or it may have, depending on how 
you define it, some impact on behavior.
    Again, as you know, there has been a very rapid increase in 
the number of users and in the number of visits per use, 
basically a doubling over a few years, and while that appears 
to have slowed down in 1997, you have a lot of years for which 
that was growing like crazy.
    I think it is a way to try to provide you with some 
additional funds, and also try to have some involvement by the 
patient.
    I and MedPAC commissioners were concerned that it not be 
too burdensome for the elderly. Therefore, we were talking 
about a modest, in the neighborhood of $5, subjected to an 
annual limit of maybe a couple hundred dollars, so that the 
people who have these extensive numbers don't get materially 
impacted.
    Mr. McCrery. Thank you.
    Chairman Thomas. I thank the gentleman. The subcommittee 
will stand in recess until about 20 minutes until 1:00, at 
which time we will be pleased to entertain the last panel. 
Thank you very much.
    [Recess.]
    Chairman Thomas. I want to thank the last panel for their 
patience, but I assume they have an ongoing interest in the 
subject matter.
    I would call Jerry Knight, chief operating officer of the 
Visiting Nurse Health System, on behalf of the Visiting Nurse 
Associations of America; Mary Ann Brock, owner and 
administrator, Guardian Homecare, Bellaire, Texas, on behalf of 
the Texas Association for Home Care; John L. Indest, chief 
executive officer, Health Care Resources, New Iberia, 
Louisiana, on behalf of Home Care Association of Louisiana.
    Ruth Odgren, vice president of Operations, Visiting Nurse 
Service System, on behalf of the Tri-County Visiting Nurse 
Association, Plainfield, New Jersey; and Denise Palsgaard, 
president, California Home Care and Hospice, Inc., Merced, 
California, on behalf of the National Association for Home 
Care.
    Thank you all. Any written testimony that you have will be 
made a part of the record.
    I would ask you, in the time frame that you have, if you 
would address us, hopefully, on the specifics as we indicated, 
of any potential solutions, and I would hope that the solutions 
do not totally consist of a moratorium, to go back two, three 
years ago, pretend the current trends don't exist, or any of 
those kinds of options.
    With that, why don't we just start with you, Mr. Knight, 
and we'll go right across the panel.
    Let me, before you begin, indicate these microphones are 
very unidirectional. You have to pull them down and speak 
directly into them. Thank you.
    Mr. Knight.

 STATEMENT OF JERRY KNIGHT, CHIEF OPERATING OFFICER, VISITING 
    NURSE HEALTH SYSTEM, ATLANTA, GEORGIA, ON BEHALF OF THE 
             VISITING NURSE ASSOCIATIONS OF AMERICA

    Mr. Knight. Mr. Chairman and members of the subcommittee, 
my name is Jerry Knight, and I am chief operating officer of 
the Visiting Nurse Health System in Atlanta.
    Founded in 1948, VNHS is the largest not-for-profit home 
health agency in Georgia, providing care to over 20,000 
patients annually. We are a very cost-efficient agency, and let 
me tell you what that means.
    According to 1995-1996 Medicare cost report data, our 
Medicare home health program cost per patient was $2,084, 
compared to Georgia's statewide average of $5,054. In 1997, our 
number of home health visits per patient was 38, compared to 
the national average of 80 visits per beneficiary.
    Our low utilization is not an accident. It is an intended 
outcome for our organization. This has meant over $5 million in 
savings to the Medicare program over the prior five years.
    In fact, it is this very philosophy that has created the 
serious financial problem for our agency, and many others that 
have been efficient providers. The interim payment system 
penalizes VNHS for its cost-consciousness.
    I am pleased to present recommendations of the Visiting 
Nurse Associations of America, an organization of nearly 200 
members and nearly $4 billion in revenues annually, on how 
Congress can address this problem.
    The VNAA and VNHS are grateful to you, Mr. Chairman, for 
holding this hearing and for your commitment to act this year. 
Refinements to IPS are even more critical today because of the 
expected delay of the Medicare home health prospective payment 
system.
    We are also grateful for the support of so many Members of 
Congress for legislation that tries to address these problems.
    Two IPS provisions are problematic, and must be addressed 
now: one, the formula for calculating the agency-specific per-
beneficiary cost limit; and second the reduced per-visit cost 
limit.
    We estimate that at least 50 percent of our members are 
affected by the new per-beneficiary limit, while another 25 
percent are subject to the lower per-visit limit.
    The impact of the per-beneficiary limit is harsh. Many 
agencies will actually be reimbursed on the basis of their 
calendar year 1993 cost. VNAA now estimates that its members 
will experience average reductions in payments of 25 percent.
    We can't compromise patient care and outcomes and quality, 
and may be forced to make tough decisions about our 
participation in the Medicare program.
    The other primary problem is the low per-visit cost limit 
in BBA 1997, which penalizes agencies that have had higher per-
visit costs but low numbers of visits and low overall per-
patient costs. This is where it hits home, Mr. Chairman.
    For example, it costs VNHS, in the aggregate, close to $80 
to make a home health visit. Under IPS, we will be reimbursed 
$8 less than our cost per visit. In 1998, we anticipate a loss 
of over $2 million from the 267,000 projected Medicare visits 
because of this reduced per-visit cost limit.
    Here are VNAA's specific recommendations on how to amend 
BBA 1997 to address these concerns:
    First, change the formula for the per-beneficiary limit to 
a blend of 75 percent national and 25 percent regional, 
retroactive to October 1, 1997.
    I must stress at this point that retroactivity is an 
extremely important issue to the organizations we represent and 
to my particular agency.
    This must be based on fiscal year 1994, as we heard 
earlier, because HCFA apparently cannot calculate a new base 
year because of its Y2K difficulties. Therefore, it is very 
important to update these numbers by the home health market 
basket index in each of the four years between fiscal year 1994 
and fiscal year 1998.
    Second, raise the per-visit limit to 112 percent of the 
mean, the pre-1997 level.
    Third, because PPS will be significantly delayed, eliminate 
the imposition of the 15 percent payment reduction that is now 
scheduled for October 1, 1999.
    We understand that the need to maintain budget neutrality 
may affect Congress's ability to act on this last issue until 
next year.
    Changing the per-beneficiary limit formula affects 
different agencies in diverse ways. VNAA believes that a 
transition might be considered as agencies move to a more 
appropriate per-beneficiary limit formula, as well as an 
outlier provision for those organizations that care for 
unusually high-cost patients.
    VNHS, and our VNAA colleagues in New Orleans, Dallas, 
Houston, and other Sunbelt cities, are proof that cost-
effective and medically effective home health care is alive and 
well in the South. If we can do it, why can't other agencies?
    If VNAs and other cost-effective providers are the model 
you want for Medicare for the future, then act on our 
recommendations this year.
    We have been gratified that you, Mr. Chairman, and other 
Members of Congress, have been willing to listen to VNAA's 
concerns about IPS, and we look forward to developing a 
workable solution this year.
    In addition, we are willing to bring some of our top 
financial folks from around the country to work with the 
subcommittee, then HCFA, to work out the details of some of the 
issues that have been troubling us all morning.
    This concludes my testimony, and I would be happy to answer 
any questions.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you very much, Mr. Knight.
    Ms. Brock.

 STATEMENT OF MARY ANN BROCK, PRESIDENT, ADMINISTRATOR AND CO-
 OWNER, GUARDIAN HOMECARE, INC., HOUSTON, TEXAS, ON BEHALF OF 
        HERSELF AND THE TEXAS ASSOCIATION FOR HOME CARE

    Ms. Brock. Thank you very much. I agree with you that we 
need to find a solution. I thank you, Mr. Chairman and members, 
for this opportunity. I am in Washington on a mission.
    Chairman Thomas. Ms. Brock.
    Ms. Brock. Yes.
    Chairman Thomas. If you can turn your head, would you move 
the mike? It is very unidirectional.
    Ms. Brock. Yes, sir.
    Chairman Thomas. Thank you.
    Ms. Brock. Thank you, Mr. Chairman and members, for this 
opportunity. I am in Washington on a mission. I am representing 
myself as an owner of Guardian Home Care, a typical independent 
owner of a small agency, and the 1,200 agencies that are 
members of the Texas Association for Home Care.
    I have approximately 100 patients on service, and 60 full 
and part-time employees who have already been adversely 
affected by IPS.
    I believe we do have an emergency situation. I believe you 
are going to have at least 75 percent of the agencies in Texas 
closing within the next month or so.
    When we talk about closing, we are not talking about 
closing and then reopening, as you mentioned earlier, but 
closing and staying closed. Texas is not a CON state, as we 
were asked earlier.
    I agree with Mr. Hash from HCFA that this is a situation 
that is much more complex than originally thought out. That 75 
percent of our agencies close that means that we will not be 
able to make payroll, that we will not be able to pay our 
bills, and that we have financial obligations that we will not 
be able to meet. We will go into bankruptcy, both corporately 
and personally.
    I think that we need to look for a reasonable solution, and 
look at all the different issues with the transition period.
    I believe that we are guessing and that we are flying blind 
at this point, and that we need to have a transition period to 
discuss all the different options, so that we don't come up 
with a plan that we would have difficulty implementing, and 
becoming the same problem that we're in now.
    When we discuss the 12-month repayment schedule that Mr. 
Hash discussed earlier, there are a lot of agencies that are 
not meeting payroll now, and they may not be able to meet a 12-
month repayment schedule.
    You've discussed fraud and abuse on occasion, many times. I 
believe that we have a zero tolerance and that we support the 
compliance mandates and criminal history checks for all 
employees.
    We need to move to PPS as soon as possible--the costs, due 
to a desire to be profitable and manage quality through 
clinical outcomes monitoring.
    I agree with Congresswoman Johnson's concern that HCFA does 
not have a plan, and the committee, without involvement of the 
home health agency sector, encapsulizes the information without 
good implementation projections.
    I believe that we need to have a 75 percent national and 25 
percent regional for all agencies, with no pre and post-1994 
issues. We need to treat all agencies equally in a community, 
with the same per-beneficiary, per-patient limits.
    We need to have outliers based on diagnoses, such as 
insulin-dependent diagnosis or COPD. Those are patients that 
are high-utilization, high-cost.
    When we talk about the outliers--and Mr. Hash referenced 
the fact that the outliers could be reimbursed on the end of 
the year cost report, that's going to cause a big cash flow 
problem, and I don't think that that would work at all.
    The retroactive implementation will close agencies. Going 
back to the 10-1-1997 cost limits per patient, per beneficiary, 
is undoubtedly going to close agencies across Texas and across 
the United States.
    The patients should not be forced to go to a higher per-
beneficiary, per-patient provider, but should be allowed to 
select a home health agency by quality.
    I think that we should use the surplus to manage IPS, and 
take some of those funds in order to help the problems that we 
have now.
    I think that we should cut costs. I think that we should 
tighten homebound status and institute guidelines.
    I think that co-pays, when we go into PPS, are realistic. I 
think, at this point, when you have patients that you are 
talking about $5 co-pays, they're not going to be able to 
afford to do that.
    I think that we need to look at the patient issues. We're 
going to have a lot of patients that are in nursing homes and 
emergency rooms and go into the hospital prematurely, because 
they're not being taken care of properly at home.
    We have insulin-dependent diabetics that are real committed 
to their independence and staying at home, and so are their 
families, and they're going to end up in a critical situation 
and end up in the emergency rooms.
    I think that we need to look at increased access and 
substantial savings, already realizing expected--excuse me.
    I think that we need to look at the 15 percent on 10-1-
1999, and go ahead and use some of the already realized savings 
to that point, look at the decrease in utilization and the cost 
savings that we have already achieved, and use that to offset 
some of the percentage.
    I don't want to create new winners and losers. Dr. Scanlon 
mentioned that less than efficient agencies might be rewarded 
if we use the system that we have now, or possibly in a new 
system.
    In Texas, the length of stays in hospitals has decreased 
over the last five years. Nursing home admissions have been 
flat.
    In Texas, we have the highest number of poverty-level 
elderly in the country, and I think that is one of the reasons 
that we have high utilization in Texas. Those patients are 
committed to independence and they want to stay at home.
    Thank you very much, and I appreciate you letting me speak. 
I think that we need to work towards a solution for IPS that is 
not going to close down all the agencies throughout the United 
States. Thank you.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you, Ms. Brock.
    Mr. Indest.

 STATEMENT OF JOHN L. INDEST, CHIEF EXECUTIVE OFFICER, HEALTH 
 CARE RESOURCES, NEW IBERIA, LOUISIANA, ON BEHALF OF THE HOME 
                 CARE ASSOCIATION OF LOUISIANA

    Mr. Indest. Mr. Chair, too, I do thank you for the 
opportunity to be able to address this subcommittee and the 
rest of the subcommittee members.
    I appreciate your acknowledgement of the inherent problems 
that we are experiencing in IPS, and have changed my remarks, 
because I assume that you realize that, hopefully, IPS, as it 
stands today, is not a workable solution.
    I also appreciate your commitment to our industry, to the 
elderly people and the homebound, that we serve, and finally, 
the urgency that you have expressed that something needs to be 
done about this matter.
    When Congressman Johnson asked the HCFA representative 
about whether they considered the problem urgent, serious, in 
crisis, probably that answer, if anything, more today scared me 
than anything else.
    We are in crisis. There is no doubt. I don't know 
wherethey're coming from. But if they would like to come to Louisiana, 
I would love to drive them around and show them that we are in crisis.
    I would like to talk to you about the solutions that you 
had requested of me, and address some of those points.
    I and the Home Care Association of Louisiana fully 
support--and if it is mandated, that would be fine--a corporate 
compliance program for Medicare home health agencies. I think 
that is a good idea.
    We believe that we need to get away from an agency-specific 
per-beneficiary limit and go to some sort of blend. While I 
will be the first to admit that I would love to see a 
moratorium, a blend is necessary. This blend should not be 
agency-specific, because then we are rearranging the winners 
and losers.
    I can tell you that, in Louisiana, across the street from 
each other, we have agencies with a $3,000 per-beneficiary 
limit and an agency with close to an $18,000 per-beneficiary 
limit. They are literally advertising the fact that they can 
provide more care than someone else.
    I am also familiar with agencies that are saying, ``I have 
two provider numbers, both with high per-beneficiary limits, 
and am willing to sell one for prime dollars.''
    It is becoming a tool, in our state, that is just, in my 
opinion, unacceptable.
    I would recommend that we go to 110 to 112 percent of the 
mean, versus 105 percent of the median.
    We do need to establish an outlier program, an outlier 
plan. My understanding is that many of our national 
associations have tried to work with HCFA on this. The one 
thing that was stated earlier about an outlier program, tying 
it to a cost report causes me concern.
    If you tie it to a cost report, which is filed five months 
after the close of your fiscal year, by the time your fiscal 
intermediary starts to look at it and owes you money back, you 
could be out of business.
    I think pro-ration is a bad idea that causes headaches that 
can't be taken care of.
    I'm concerned about implementation of OASIS in the midst of 
all of this, there is no funding that will help us implement 
this very costly program that is being proposed.
    I would continue the PIP payments for home health agencies 
until the enactment of prospective payment.
    It seems that, as of late, our fiscal intermediary, PGBA, 
has increased their claims review, and I do not condemn this. I 
think claims review keeps us all honest, as long as we have a 
right of appeal, which everyone should have a right to.
    It also seems that, finally, statistical information is 
being used to target aberrant behavior among home health 
agencies. I've been in the home care business for 15 years and 
have never seen this done before. But lately, it's being done, 
by the OIG, by the United States Attorney's Office; by HCFA. I 
consider this a good way of proceeding, and it certainly is 
happening in Louisiana.
    I believe we must go retroactive to 10-1-1997. I don't know 
anyone in business who could see the Balanced Budget Act that 
was enacted in August of 1997, it became effective 10-1-1997. 
No one knew the rates. The national rates were published 3-31-
1998. Agency-specific rates, some have them, some still don't.
    We are shooting in the dark. This is intolerable. To go 
back is a must for us. The final nail in the coffin is that 
most of the rates that are published are in error.
    I would hopefully eliminate the 15% reduction--a lot of the 
rates that are being sent out to the home health agencies are 
in error, and subject to review.
    Chairman Thomas. It was the Louisiana pronunciation. But 
Jim immediately told me what that was. [Laughter.]
    Mr. Indest. I'm sorry.
    Chairman Thomas. That's OK.
    Mr. Indest. Then, on top of that, I'm a Cajun.
    Chairman Thomas. That's why he told me what you said. 
[Laughter.]
    Mr. Indest. Mr. McCrery is from the north, but I appreciate 
the interpretation.
    I would like to address, just for a second, co-pays. I 
think co-pays are something that should not be acceptable in 
the home health agencies. Co-pays are a tax on the sick. Those 
patients who will be subject to the most co-pays will be the 
sickest patients.
    Any home health agency can cite you statistics, instances 
where we enter a patient's home and, if we are going to ask 
them for $5 a visit, they don't have the money to buy all of 
the medicines that the physician has prescribed for them.
    Or, like someone pointed out to me last night, because they 
like their home health agency, they will come up with the $5 
and not buy another medicine that they were supposed to have.
    I, too, appreciate the opportunity to address this 
subcommittee. Questions were brought up about CON, high 
utilization in Louisiana. Those are certainly areas that I 
would love to address upon further questioning.
    Thank you.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you. You can certainly submit those, 
in terms of additional writing, if you want to direct it to 
that, as well, if we don't give you ample opportunity to get 
your point out.
    Mr. Indest. Thank you.
    Chairman Thomas. Thank you very much, Mr. Indest.
    Ms. Odgren.

    STATEMENT OF RUTH ODGREN, VICE PRESIDENT OF OPERATIONS, 
   VISITING NURSE SERVICE SYSTEM, ELIZABETH, NEW JERSEY, AND 
  PRESIDENT, HOME HEALTH ASSEMBLY OF NEW JERSEY, ON BEHALF OF 
             TRI-COUNTY VISITING NURSE ASSOCIATION

    Ms. Odgren. Thank you. Thank you, Chairman Thomas and the 
rest of the subcommittee, for allowing me to come and testify 
on behalf of Tri-County Visiting Nurse Association in 
Plainfield, New Jersey.
    I am also the president of the Home Health Assembly of New 
Jersey, which represents the majority of the home care agencies 
in New Jersey, as well.
    For those of you who are not aware, New Jersey is the 
fourth lowest state in total overall Medicare home care cost. 
We have a certificate of need in place in the state of New 
Jersey, and we also have very strict and stringent regulations.
    I would like to just talk for a minute about two issues 
that have been brought up in the testimony, about ways to sort 
of game the system, that are unavailable to home careagencies 
in the state of New Jersey.
    First of all, it is regulatorily impossible to close your 
organization in New Jersey and reopen. It's not an option.
    Secondly, if Tri-County Visiting Nurse Association was 
merged into or acquired by another home care association within 
the state of New Jersey, at its per-beneficiary limit of 
$1,950, whoever acquired them would cost the system more money 
than Tri-County VNA costs the system right now, because, to my 
knowledge, it is also in the lowest region the fourth lowest 
state, and the agency with the lowest per-beneficiary limit, so 
I don't know that anybody would want us.
    This year, Tri-County VNA, when we looked at our per-
beneficiary rate and the effect of the change in the per-visit 
rates from 112 percent of the mean to 105 percent of the 
median, was anticipating about a half-a-million dollar loss on 
a budget under $4 million.
    We have made some adjustments. We have reduced some of our 
staff. We have suspended our pension payments to our staff for 
the rest of the year, which was not an easy decision.
    We have reduced the amount of money that we pay our staff 
for using their automobiles to see patients. The Federal IRS 
limit is 32.5 cents. We have reduced the amount that we are 
paying our employees down to 20 cents.
    We believe we have cut as much as we can from our budget, 
and we will still anticipate being $2.5 million in the red at 
the end of the year.
    We don't have cash reserves. We are a voluntary, not-for-
profit organization established in 1894, and we do not have a 
large ability to borrow money to offset that loss.
    In my written testimony, I pointed out two, which I would 
consider outlier cases, that cost the Medicare program between 
$8,000 and $9,000 for each of those patients.
    Had those patients been unable to get home care because the 
agency no longer existed or a higher-cost agency existed--or 
what may happen, and I believe is happening across the country, 
forcing agencies to pick categories of patients they can no 
longer admit across the board.
    For instance, Tri-County Visiting Nurse Association could 
develop a policy that says, ``We are no longer able to admit 
anybody who requires daily care or care more often than that. 
We can't afford to. We need to be here for the bigger 
picture.''
    Then, what would happen is, those patients that I used as 
examples in my written testimony would end up in sub-acute 
skilled nursing facilities, to the tune of $450 for the first 
20 days of care, and 80 percent of that, or $360 for the next 
80 days.
    It costs the Medicare program between $8,000 and $9,000 for 
those gentleman in Plainfield, New Jersey in home care. It 
would have cost the Medicare program, in a skilled nursing 
facility, in excess of $30,000 to provide the same service in a 
skilled nursing facility.
    Therefore, I think that IPS needs to be changed. It needs 
to be changed for this current fiscal year, and not next year 
or a year after, and I think that we need to go to a blend that 
is more acceptable:
    Seventy-five national/25 regional; 112 percent of the mean; 
delete the 15 percent per-visit limit cap reduction of 10-1-
1999; continue PIP until HCFA can put in place a prospective 
payment system; and everything needs to be retroactive to 10-1-
1997.
    I have listened today to some of the ideas about co-pay and 
outliers, and I'm certainly willing to listen to that. I don't 
have enough information. Obviously, a lot of us don't have 
enough information to make those decisions right now.
    I thank you for listening to me, and I do implore you to do 
something this year, because I do believe the Tri-County VNA, 
and many other community-base VNAs in the state of New Jersey, 
will not exist in and of themselves, come the first of 1999. 
Thank you.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you, Ms. Odgren.
    Ms. Palsgaard.

STATEMENT OF DENISE PALSGAARD, PRESIDENT, CALIFORNIA HOME CARE 
    AND HOSPICE, INC., MERCED, CALIFORNIA, ON BEHALF OF THE 
NATIONAL ASSOCIATION FOR HOME CARE, ACCOMPANIED BY MARY SUTHER, 
     CHAIRMAN AND CHIEF EXECUTIVE OFFICER, VISITING NURSE 
ASSOCIATION OF TEXAS AND CHAIRMAN, BOARD OF DIRECTORS, NATIONAL 
                   ASSOCIATION FOR HOME CARE

    Ms. Palsgaard. Thank you, Mr. Chairman. My name is Denise 
Palsgaard. I'm a registered nurse and president of California 
Home Care and Hospice in Merced, California, home of the next 
U.C. campus. The Chamber of Commerce asked me to say that when 
I got here.
    Mary Suther, chairman and CEO of the VNA of Texas, and 
chairman of NAHC's board of directors, is accompanying me here 
today.
    NAHC appreciates the opportunity to testify on solutions to 
the very serious problems resulting from IPS, and deeply 
appreciates the support you, Chairman Archer, and members of 
this subcommittee have shown for reforming IPS. IPS reform in 
this session is urgently needed.
    The per-beneficiary limit, the per-visit cost limit 
reductions, the October 1, 1999 15 percent reduction, and the 
effect of IPS on elderly and disabled individuals most in need 
of home care top the list of issues that must be addressed.
    NAHC fully appreciates the sensitivities surrounding the 
concept of an IPS moratorium. However, the IPS problems are so 
many and so serious that another solution simply may not exist 
that would fix the problems for home health providers in all 
parts of the country, and provide a solution that could be put 
in place before October 1, 1998.
    NAHC is joined by the American Federation of Home Health 
Agencies, the Home Care Association of America, and the Home 
Health Services and Staffing Association, in supporting this 
position.
    Absent a moratorium, there are specific issues that must be 
addressed to adequately reform IPS. Unless reforms are 
implemented retroactively to October 1, 1997, many of the home 
health agencies that Congress most wants to help just won't 
survive to see the life raft.
    I sit here as one of those small companies. We have 45 
employees, myself as the administrator, and we are a very cost-
effective agency. That has, like many on the panel, gotten us a 
very low-cost per-beneficiary limit.
    Some of the things we have done is to implement a 10 
percent across-the-board pay decrease to our 45 employees. We 
have tried to look at other cost savings. Because we were so 
cost-effective anyway, that was very difficult to do.
    I agree with Mr. Indest, that my agency is in a crisis, and 
I believe that what will help that crisis is reform in this 
session.
    I also think that it is very interesting, as a registered 
nurse, that many folks don't understand the crisis.
    I would invite them, certainly to come and do home visits 
with us, and then, on the other end of my spectrum, to sit in a 
bank, as I did Monday, and ask for another line of credit 
because I need to make payroll, when my receivables well could 
make payroll, but they're stuck in a system that won't let the 
money go. And bankers are tough people to address.
    I think that those are crises, and they are real; and that 
is just this week.
    Specifically, Congress should revise the per-beneficiary 
limit, implementing a regional blend that will help level the 
playing field in all regions of the country.
    Under this approach, each census region would be assigned 
the greater of one or two blends--either 75 national and 25 
regional, or 75 regional and 25 national. Payments would be set 
at the percentage of the blends necessary to ensure that total 
expenditures are no greater than budgeted levels.
    Eliminate the 15 percent October 1, 1999 reduction. Raise 
the per-visit cost limit to 110 percent of the mean from 105 
percent of the median. Establish a funded outlier policy based 
on costs incurred in caring for patients. Pro-rate the per-
beneficiary limits only where agencies transfer or prematurely 
discharge patients for purposes of circumventing the limits. 
Maintain PIP for home health agencies until 12 months after 
implementation of PPS.
    Other elements of IPS that should be addressed include the 
application of extending the savings from the freeze to the 
per-beneficiary limits; setting the base year at fiscal year 
1994; and denying providers the opportunity for exemptions and 
exceptions to the per-beneficiary limits.
    Some of these issues can be resolved administratively, and 
do not need a legislative fix. We urge the Committee to insist 
that HCFA reverse its decisions in each of these areas.
    While resolving these issues would not fix all the IPS 
problems, it would certainly address some important points that 
would make a legislative solution within the required budget 
parameters that much more feasible.
    Specifically, HCFA chose to apply the recapture of the 
savings of the freeze provision to the calculation of the new 
beneficiary limits in addition to the per-visit cost limits, 
setting the per-beneficiary limits at artificially lower rates. 
The new limits didn't even exist at the time of the original 
rate freeze.
    HCFA assigned new providers a rate that reflects national 
rather than census data, giving some new providers much lower 
and others much higher reimbursement levels than other 
providers in the same areas.
    HCFA chose to pro-rate the per-beneficiary limit in all 
cases, rather than only in cases where home care agencies act 
to circumvent the limits. HCFA is not allowing any exceptions 
to the per-beneficiary limits, even though using a five-year-
old base year does not account for many changes in the amounts 
and types of services provided to patients.
    We deeply appreciate your leadership, Mr. Chairman, and the 
support of other members of the subcommittee, to fundamentally 
reform IPS this year, and we look forward to working closely 
with you to resolve these issues. Thank you.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you, Ms. Palsgaard.
    I guess my basic comment to all of you is that I continue 
to be very, very frustrated, although there are some specific 
instances where there has been some useful information provided 
to us; and frankly, this is not new with this particular 
industry.
    When we were trying to work out a program to deal with 
this, when we were writing the Balanced Budget Act, we had 
somewhat similar cooperation.
    Virtually all of you want to go back to the 112 percent of 
the mean. Virtually all of you want to eliminate the 15 percent 
reduction. None of you have provided any way in which we could 
find those dollars.
    Your proper answer would be, ``That's up to you.'' My 
answer is, the Congressional Budget Office tells us that 
eliminating the 15 percent is a $4.1 billion cost.
    The idea that we should just go ahead and let folks pick 
their own poison in terms of the blend in their particular 
area, on its face, is pretty naive.
    The reason we are going with these structures--if you will 
recall, the administration offered a 100 percent agency blend--
the reason we are going with some kind of a structured blend is 
to begin to move in the direction of what will be in place on a 
prospective payment system. It may not be going in place on 
time, but it is going in place, shortly afterthey indicated.
    If everybody is going out of business in this current 
structure before the minus 15 percent is in place, then there 
won't be anybody in business when the prospective payment 
system goes into place. I see all of you nodding your heads.
    Ms. Brock, you just testified that 75 percent of the home 
health agencies in Texas will be out of business this month or 
shortly thereafter. Is that correct?
    Ms. Brock. Sir, I believe it is correct.
    Chairman Thomas. All right. That means 1,500 home health 
care agencies will close in the state of Texas.
    Ms. Brock. That's true. And I think that there have been a 
tremendous amount of new agencies since 1994, so we have to 
take care of that, and we have to adhere to that----
    Chairman Thomas. I understand all that. But I'm looking at 
the data in 1994, not in terms of the number of agencies, but 
in terms of the number of visits and patients.
    In 1994, there were 20 million visits for 211,000 patients 
and the average visit per patient was $96.75. In 1995, 28 
million visits, 245,000 patients, $116. In 1996, 33.7 million 
visits, 259,000 patients, $130 per visit.
    In 1997, 35.8 million visits, 257,000 total patients--
interestingly, fewer patients, but 2,000 more visits between 
1996 and 1997--to increase to $139 per patient.
    In fact, if you look at it between 1994 and 1997, the 
increase in the number of home health agencies went up 85 
percent. And you are going to come in front of this 
subcommittee and testify that, within the next month, 75 
percent of the agencies are going to close in Texas?
    Ms. Brock. As of my last year's cost report, the end of my 
last year's cost report, on 3-31-1998, I was being reimbursed 
$81.85 per visit. At this point right now, I am at $32.50 a 
visit, and I have an overpayment due back to Medicare 
immediately of $54,000. I have----
    Chairman Thomas. I understand. That's the reason we're 
holding the hearing.
    Ms. Brock. Right.
    Chairman Thomas. We're trying to make adjustments. But for 
you people, as an industry, to come in front of me and tell me 
that 75 percent of the agencies in Texas are going to close 
within a month is either a scare tactic--which, guess what, it 
doesn't work--or naivete, which, if you've been selected by 
your various groups to testify and represent the sophistication 
level of this industry, then what you have asked in terms of 
the solution fairly well reflects that, that what you want is 
nothing.
    I said at the beginning of the hearing, we have to go 
forward with the changes in this industry because it is rife 
with fraud, people are being ripped off, and those that are 
honest agencies have got to figure out ways to come to the 
surface. Frankly, we don't have the tools that we would like, 
but we have got to make sure that this industry rights itself.
    I would much prefer a peer group review inside each of the 
operations, going after the bad apples, so that when you sit 
here and tell me that 75 percent of the agencies in Texas are 
going to close, we can all agree that those should have closed, 
because of the way they operate, and if they shouldn't have, we 
would be sitting down and working on solutions that would 
resolve it.
    It is just extremely difficult for us, in terms of trying 
to put together a solution for your problems, to be told the 
answer is a moratorium, the answer is don't do anything, the 
answer is, let us pick whatever rate we want in our area, 
repeal or go back to previous law and, by the way, we're all 
going out of business.
    It just is simply not reflected in all of the evidence that 
we're getting. If that's the position you wish to maintain in 
our determining how we are going to change your industry, then 
just sit back. We will do what we believe what we believe is 
the appropriate thing to do, and the information that you 
provide to us, we will simply disregard. That's not a healthy 
relationship, when the committee reaches out and says, ``Give 
us some solutions.''
    Now, I would say that the testimony from Ms. Odgren from 
New Jersey, based upon my knowledge of how narrow the range 
between home health agencies is New Jersey, one of the 
narrowest ranges between the high and the low, and at the same 
time, very few visits, creates a real problem for us in trying 
to determine how we evaluate it with the gentleman, Mr. Indest, 
from Louisiana, which has one of the greatest ranges between 
and the high and low, and the evidence he gave with the folks 
across the street is clearly evident, but what it also sounded 
to me like was that this is one of the hot new investment 
areas, and that there are people who have gone into this 
because clearly it appears to be a way to make money. At least 
it was in the past.
    Here is Entrepreneur Magazine for August of this year: 
``Have health care experience? Here's a business just for you. 
The demand for quality health care at affordable prices is 
rapidly increasing, and you can turn that demand into a highly 
profitable home health care agency.
    ``Many treatments that once required hospitalization can 
now be done on an outpatient basis. If you have experience as a 
nurse, therapist, or medical assistant, you can take advantage 
of these advancements by caring for patients in their own 
homes, or if business skills are your forte, you can provide 
health care supplies and hire health givers to work for you''--
et cetera, et cetera. This is a new investment opportunity.
    My guess is that perhaps your argument is that was true 
pre-BBA; it isn't any more, and what you are doing is 
indicating to me that there is going to be a settling out in 
the industry. Frankly, it was overdue.
    Our job is to make sure that the good people, who do a good 
job, survive; those who weren't don't. And, frankly, we are 
doing it with very little information and data.
    We do know this, for example. On average--and perhaps all 
of you are not average, or above--on average every home health 
care agency had costs increasing faster than inflation. When we 
did our caps in terms of the rates, we used market basket to 
update them.
    Why are costs going up faster than inflation? Is it 
management?
    Ms. Odgren. I would be happy to respond to that. I think 
that some of the things that have caused the costs to go up 
faster than inflation--and again, I can only speak from New 
Jersey, I can't speak from any other part of the state--is that 
the length of stay between 1993 and 1998, in New Jersey 
hospitals, for Medicare patients has decreased by three days. 
So there is a three-day period of acuity that wasn't there 
before.
    I don't think it's a single reason. I don't think it's a 
single reason. I think there's a number of reasons.
    Chairman Thomas. The ripple effect of other changes is an 
absolutely legitimate argument, if we have empirical data to 
back it up. We're trying to look at those factors.
    Ms. Odgren. I got the hospital length of stay on Medicare 
patients data yesterday, from the New Jersey Hospital 
Association, so that's the information that I was given.
    Chairman Thomas. The approach we need to take is to get as 
accurate of information as we can, to be able to make the best 
decision that we can, in largely a dollar neutral world.
    You heard a lot of us willing to go find more money to help 
fix this problem but, frankly, from my position, the industry 
has to be far more responsive, far more open, and far less 
hectic in trying to create impressions that are not backed up 
by careful analysis of fact.
    There are several organizations, national and other, that 
are doing your industry no service whatsover by blast-facting 
nonfactual information, by attempting to run around and create 
difficulties for those of us that are trying to approach this 
in a rational way by stirring up Members with information that 
those Members do not have the ability to evaluate.
    I would hope that, other than go back to current law, put 
in a moratorium, let us pick our own rates--and there are a 
couple of others that you have offered that, obviously, we will 
be looking at--is simply not a conducive way to be able to make 
decisions.
    The gentlewoman from Connecticut.
    Mrs. Johnson. Thank you very much, Mr. Chairman. I just 
have a brief couple of questions, as I have to leave.
    First of all, it is as frustrating to us as it is to you 
that we are bound by budget rules, but you can only run a 
nation with certain rules, and that is just simply the way it 
is. So it isn't possible to do what you're proposing we do. It 
just isn't possible.
    What we have to do is, what are those things that we could 
do that would be helpful to you, that are also affordable and 
wouldn't draw money out of some other sector in a way that 
would be destructive.
    There are two things that I would say.
    First of all, Ms. Brock, I think you have an enormously 
good case, and somehow you have to all get together or be heard 
better, and I think, frankly, your own Congressman can help you 
be heard better by the regional HCFA people.
    You should not be getting letters that tell you one week 
your rate is going to be this, and two months later your rate 
is going to be that. In her testimony she detailed how she got 
one rate, and they said that they had underpaid her $117,000, 
and then two months later, a much lower rate, and she had been 
overpaid.
    You can't run a business this way, and you can't go to the 
bank and get a loan this way. That is something that we've got 
to fix, just the mechanics of moving the payments out.
    If you listened carefully, you might have heard the GAO say 
that he thinks the two causes were the moratorium and also the 
slow rate of payment.
    We can probably help you on that, just being able to get 
your money moved through in a way that you can stay alive if 
you deserve to stay alive, and not lose your own personal 
investment as a small businesswoman. That's----
    Chairman Thomas. Will the gentlewoman yield briefly?
    Mrs. Johnson. Yes.
    Chairman Thomas. I want the record to reflect accurately 
what has occurred.
    In terms of the letter that was sent initially, that was on 
the per-visit. In fact, the letter said: ``A review of your 
interim rates incorporating the per-beneficiary limitation will 
be addressed in a separate letter.''
    The separate letter was, in fact, the per-beneficiary cost. 
It wasn't that they said one thing and then said another.
    Mrs. Johnson. Okay. Thank you. I did skim through her 
testimony. Nonetheless, I think the point that you can't get 
information about what your costs are in a timely fashion, and 
then you can't get paid in a timely fashion, is a problem in a 
period of such----
    Chairman Thomas. I would tell the gentlewoman she, in 
skimming, read the testimony correctly. The testimony 
misrepresents the letters and the content of the letters in a 
specific way. One was the per-visit, which said, ``Another 
letter will be coming,'' which is the per-beneficiary.
    It was not that they sent a letter with one rate and then 
sent a second letter with a second rate. It was two different 
rates because it was two different subject matters.
    Mrs. Johnson. All right. It does need to be looked into 
more carefully, though, because if under rate you were 
underpaid $117,000 and at the other rate you were overpaid--so, 
anyway, the point is that, really, these things ought to be 
worked out with the administrators in a way that just merely 
payment flow isn't the problem.
    I am a big supporter of continuing PIP, and I can tell you 
that, at least in my area, the regional people have really been 
willing, once I brought that to them, because they're not 
interested in seeing agencies die just because the bureaucratic 
mechanism didn't allow, you know, honest reimbursement under 
our current system to flow.
    I will just urge you to try to deal with those problems, 
and some of us can maybe help you.
    I am very surprised that all of you are willing to move 
into the future with a system that drifts toward national and 
regional data, and excludes entirely agency data.
    The more I've thought about it, and I think about the 
spectrum of cases that you deal with, and the inability of the 
national system, no matter how good, to ever really judge 
efficiency, or really be patient-specific, I don't know why you 
would want to go to a system that has no agency-specific data 
in it.
    Yes.
    Ms. Odgren. I'll respond to that, as well. I think because 
the people, for the most part, that I see that are sitting 
here, are on the low end of the per-beneficiary limits, and 
so--I mean, I understand what Chairman Thomas was saying, but I 
don't think it is the people that he is the most concerned with 
that are necessarily the people sitting at this table, because 
they're not here to testify, because they're not being hurt.
    So, if we are at the very low end, as an individual agency, 
it would make sense that a national and a regional board----
    Mrs. Johnson. That might make sense in the short run. What 
I would ask you to think about is, do you really want that in 
the long run? If you have any follow-on thoughts about that----
    Ms. Odgren. I will.
    Mrs. Johnson [continuing]. Yyou know, please let me know. 
Becausewhile right now, it might look good to you, because it 
would raise your rates, in the long run, are we going to have a system 
that serves us, if it is blind to actual costs?
    Ms. Odgren. Right. But, in the long run, we're going to 
have the prospective payment system, which we're all looking 
for. I mean, hopefully, not in the real long run. I'm trying to 
exist in the short run.
    Mrs. Johnson. Yes. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Thomas. The gentleman from Maryland.
    Mr. Cardin. Thank you, Mr. Chairman. As I've indicated 
earlier, I have a major concern that we move forward quickly, 
because of the urgent situation, so I agree with the thrust of 
all of your testimonies.
    Let me talk a little bit about the per-beneficiary problems 
and the way that the current interim payment is handled.
    I must tell you, I can relate much more with New Jersey and 
California than I can with Texas or Louisiana or Georgia, 
because of the number of average visits per use. I come from 
the state of Maryland, which is at 34 average visits per user 
in 1997. California was at 47 and New Jersey was at 41, 
compared to Texas at 134 and Louisiana at 153 and Georgia at 
93.
    I guess I have a question for each of you. That is, if you 
come from a state that has a high average use per beneficiary, 
why shouldn't we expect you to do something about that, and get 
that number down to a more reasonable level?
    If you come from a low-user state, how did you do it? Maybe 
you should be sharing the secret with other states, and help us 
save money on home health care.
    Mr. Indest. If I may respond?
    Mr. Cardin. Sure.
    Mr. Indest. Since our state has the dubious honor or the 
highest.
    In my written testimony, I was very candid about what I 
feel are the problems in Louisiana. I have served for numerous 
years as chair of the Government Affairs Committee of our State 
Home Care Association. I've been in business since 1983.
    We tried, on numerous consecutive years, to get a CON, some 
type of sensibility to the rapid growth of home care in 
Louisiana. As an industry, we tried to do that.
    We were very naive about the process. We found out the 
first two years, it was the Governor's office that was shooting 
us down.
    Mr. Cardin. Let me just suggest and support what Mr. Thomas 
has said, then. Why didn't you come forward and ask us to help 
you in the interim payment, to put a reward on some action by 
your state to reduce what I believe you are saying is 
unreasonable utilization?
    Mr. Indest. I might be misunderstanding your question. I'm 
not asking for a reward. I do not support the wide variety in 
per-beneficiary limits in Louisiana. I think that any business 
needs to be on a level playing field, and what I support is a 
level playing field for the home care providers in Louisiana.
    Mr. Cardin. Good. How do you do it? Can you tell us 
something of how you were able to get it down? You're being 
penalized under the current formula for your success. But how 
did New Jersey and California do it?
    Ms. Palsgaard. Well, I can speak for California and 
specifically the Central Valley, because they're the people 
that I'm most around.
    I do think one of the reasons is that we have had, in the 
last few years, a big push for seniors, for managed care. In 
some other kind of environment, perhaps you have to look at 
exactly what the doctor is ordering and what you can provide.
    Also, perhaps we have just been able to look at the issues 
of the fact that, as a businessperson, we want to be very cost-
effective, because we were looking at the prospective payment 
proposal that we have all been looking forward to happening in 
our industry.
    Our agency was looking at being just as cost-effective as 
we could with our mission always being the highest quality care 
possible to our patients and following the physicians' orders 
for what care is needing to be provided.
    I really can't speak for other parts of the country. I see 
the statistics like you do, and I believe that, just in 
California, we're just trying to work within all the 
regulations and within all what is allowed under the Medicare 
home care benefit, and try to do a very good job for the 
patients----
    Mr. Cardin. Let me compliment you on what you have done in 
California, but let me just, I guess, underscore the point that 
Mr. Thomas has made.
    That is, your associations could do us a service to look at 
this, and give us recommendations where we could come in with a 
more rational formula--even if it's the interim formula, forget 
the PPS--so that you don't lose money as you're losing today, 
because we're paying for the inefficiencies of unjustified per-
visits in other parts of the country, or among other agencies, 
if it's not the full state, if there are problems with 
different practices within different agencies within a state.
    Obviously, there is some waste here. It's difficult to 
understand these numbers. We can't afford that, particularly 
when we are trying to find revenues in order to deal with the 
problem currently.
    It would be useful if you could help us, and rather than 
just say, ``Well, add more money and hold everybody harmless,'' 
if we could get at where we are paying for services that 
perhaps are not needed, to be able to use those resources to 
deal with the legitimate problems that you have brought to our 
attention.
    Chairman Thomas. I thank the gentleman. The gentleman from 
Louisiana.
    Mr. McCrery. Thank you, Mr. Chairman. Each of you has a 
home health agency. Do you know what your per-beneficiary visit 
cap is and, if so, would you just let us know? Mr. Knight?
    Mr. Knight. Mine is about $3,300 in Atlanta. As I said in 
my oral presentation, the per-beneficiary cap is not the issue 
that confronts my particular agency.
    Mr. McCrery. Yes, I'll get into that. I just want to know 
if you know what your cap is. Ms. Brock?
    Ms. Brock. About $3,300.
    Mr. Indest. We do not know yet.
    Ms. Odgren. $1,950.
    Mr. McCrery. About $2,000?
    Ms. Palsgaard. A little over $3,000.
    Mr. McCrery. A little over $3,000?
    Ms. Palsgaard. Mm-hmm.
    Mr. McCrery. Okay. Mr. Indest, let me get the good stuffout 
first.
    You include, in your written testimony, a reference to a 
report that was done for HHS which justifies, to some extent, 
the higher cost in Louisiana and some other high-cost states 
vis-a-vis other states that have lower costs, and they refer to 
such things as availability of alternative delivery systems.
    In your testimony, you refer to a higher incidence of 
cancer and some other diseases that carry with them higher 
costs in the home health field.
    Would you like to elaborate on that? Do you think there is 
really that much difference between Louisiana, Texas, and some 
other high-cost states and, say, New Jersey and Connecticut, 
and low-cost states?
    Mr. Indest. The Mathematica study that I quoted came from 
our national association, the National Association for Home 
Care. I don't have the full study, but I quoted that section of 
it that gave some explanation for the increase.
    Again, I am being extremely candid. I think that is an 
explanation but I don't think it is the full explanation as to 
why we have high utilization in Louisiana, and that's all I can 
speak for.
    Louisiana has been an open state for home care. Those 
people in Louisiana are reading the magazine that the chairman 
read from, and I stated that in my written testimony.
    Mr. McCrery. Let me stop you before you get into too much 
more trouble. [Laughter.]
    Mr. McCrery. How about, let me ask about the proposal from 
the VNA that we go to a new blend of 75 percent national and 25 
percent regional. How would that go over in Louisiana?
    Mr. Indest. I think that would hurt Louisiana.
    Mr. McCrery. I think you can leave off the ``think.''
    Mr. Indest. Yes. It would hurt Louisiana substantially.
    Mr. McCrery. So you would not be in favor of that new 
formula?
    Mr. Indest. I would not be in favor of that. No, sir.
    Mr. McCrery. I want to ask you now another tough question. 
In looking over the data for the number of home health agencies 
in various states, I've picked out some states that are 
approximately the same size as Louisiana.
    Alabama has 183 home health agencies; Arkansas, 206; 
Georgia, 98; Kentucky, 109; Mississippi, 70; Missouri, 275; 
North Carolina, 162; Tennessee, 238; Louisiana, 514. What is 
your explanation for that?
    Mr. Indest. Well, the last time I started to make it, you 
stopped me, because you didn't want me to get into any more 
trouble.
    Mr. McCrery. Yes, but now I'm prepared for you to go there.
    Mr. Indest. Number one--and I can only speak to certain of 
those states--Mississippi, I think, has a CMN, and that has 
been in effect for a long time. I think the same is true for 
Alabama.
    As far as Louisiana is concerned, I spoke about the 
problems we had with the downturn in our economy in the 1980s. 
A lot of people, and I have people that I know of who were in 
the oil and gas business, and they read the magazines and said, 
``Well, you know, this looks like a great business to be in.''
    It used to be, and I stress ``used to be.'' I would think, 
in most states, if you had two physician friends who were high 
referrers to home care, legitimate referrers to home care, and 
you could get them to refer to you, you had a home health 
agency.
    Mr. McCrery. It's an interesting point, about the oil and 
gas industry. Surely, there's nothing to that. But it does 
appear that Texas, Oklahoma, and Louisiana have the highest 
proportion of home health agencies in the United States for the 
population. [Laughter.]
    Chairman Thomas. Would the gentleman yield?
    Mr. McCrery. Be glad to yield.
    Chairman Thomas. I would want to point out that Kern 
County, California, which is three counties away from Ms. 
Palsgaard's operation, produces more oil than the entire state 
of Oklahoma and that, if it were a state, this one little 
county in California, it would be behind only Texas, Alaska, 
and Louisiana in oil production; and we only have 48 visits. So 
the series is going to stop right there. There is no connection 
to oil and gas.
    Mr. McCrery. That's probably true, but it is an interesting 
coincidence. In California, you have other things to do besides 
oil and gas.
    Mr. Indest, it's clear to the members of this panel and to 
the Congress and, obviously, to the Clinton administration, 
that there were problems in the home health industry that 
needed to be addressed. Utilization was going way out of 
control, costs were going way out of control. We had to do 
something.
    It is clear to us now that the steps we took to try to get 
us to a prospective payment system, which all of you told us 
you wanted, and we said, ``Yes, it sounds like the solution,'' 
the interim steps were not the best that we could have devised, 
evidently.
    We are in a bit of a problem, due to the budget rules and 
the reluctance of the administration to suggest any plans that 
are anything but budget neutral.
    I don't know what to tell you. I've been telling folks back 
home, Mr. Indest, that we are going to do something, and we are 
going to do something. Unfortunately, I can't report to you 
today that that is something that we are going to do is going 
to help.
    We are looking to you all for more suggestions, if you have 
any, short of ``Let's go back to the old system,'' because that 
isn't going to happen. We would like to have them.
    I will tell you, too, that this reshuffling of the formula 
is just picking new winners and losers, and that's not 
acceptable to me, nor is it acceptable, I would think, to any 
of the other high-cost states. We have to find a way to wean 
some of these agencies, while not hurting the good actors in 
the program.
    Thank you all very much for your help, and we look forward 
to receiving more input.
    Mr. Indest. If I just might say, the executive director of 
our state home care association is with me today, and we will 
take you up on your offer of getting in touch with your 
office----
    Mr. McCrery. Good.
    Mr. Indest [continuing]. To hopefully come up with a 
solution.
    Mr. McCrery. Thank you.
    Chairman Thomas. The gentleman from Washington, a memberof 
the full committee.
    Mr. McDermott. Thank you, Mr. Chairman. This is a bit like 
a busman's holiday. I feel like Mr. Knight and Ms. Odgren and 
the lady from California, Ms. Palsgaard, are sort of the people 
that have been going through my office, one after another, for 
the last three months in the state of Washington.
    As I listen to this discussion, it seems like what we have 
done is we have slammed the barn door when the cow is way down 
the road, and now we are trying to figure out what do we do 
with it. It seems----
    Chairman Thomas. Excuse me. The cow or the barn door? 
[Laughter.]
    Mr. McDermott. Either. A good question.
    Chairman Thomas. I'm trying to follow you, but I didn't 
know which one you meant.
    Mr. McDermott. The issue that, it seems to me, that we have 
to decide on this committee is how much do we try and 
micromanage this situation, and how much do we let it be 
decided by the states, because Mr. Cardin and I and Oregon and 
New Jersey are going to be in bad trouble here, very quickly.
    I don't know how you stay open when you're $2 million in 
debt. What do you say to a banker when you say, ``Well, I got $ 
2 million in debt and I would like some more line of credit''? 
You don't make it up in the volume, so to speak.
    The question is whether or not we might just block grant 
the money to the states, give everybody a per capita amount, 
and let them all figure out how to do it, because I know that 
New Jersey and California and Maryland and Washington would be 
able to figure out how to do it. There would be a lot of pain 
in some places like Texas, but at least you would decide it 
down there.
    What troubles me is Texas and Louisiana seem to have the 
problem that the state legislature and the Governor and people 
at that level were unwilling to step up and do what had to be 
done.
    I think that the committee is caught between--I mean, many 
of my colleagues on the other side don't like big government. 
They don't want Washington to decide everything. This looks 
like a perfect issue to give a block grant to the state and 
say, ``You do your home health care agencies on the basis of 
we'll give everybody $10 per person in the state, and you can 
go down the road and figure out how to deliver the care,'' 
because that would force a process in the legislature.
    The other way, sitting up here trying to figure out, should 
we take back the 15 percent? Well, that gives us a short term 
break. That's like taking your foot off the air hose for a 
patient who is on oxygen for about 20 minutes.
    Ultimately, it is going to come back down in some kind of 
crazy way, if we don't figure a way to break this disparity 
between the high and low states.
    I would like to hear what your view is. I suggest to the 
chairman that maybe we ought to lift the 15 percent cut, but 
give every legislature exactly two years, or one year, to come 
up with a certificate of need process, to weed out, according 
to some national characteristics, who is capitalized properly, 
and then you get these wildcatting entrepreneurs out pretty 
quick.
    I don't think the fact that Texas lost 450 nursing home 
agencies worries me very much. I figure that's a real shakeout, 
and it's going to have to get worse.
    I would like to hear how you think, besides having us do 
all the work and just shoveling more money to you, what is it 
that has to happen at the local levels that we can mandate and 
say, ``You people solve it your own way locally.'' Yes.
    Ms. Odgren. I would like to speak to that. I think Mr. 
Cardin has asked earlier, you know, how do we do it. I think 
you're hitting on some of the issues.
    I do believe, in New Jersey, we have a combination of two 
things that keep our per-visit and our cost per visit low.
    One is, we are a CON state. We are high-density population, 
particularly frail elderly, a larger growing over 85 
population, and that we have the certificate of need in place. 
We have no more than 60 Medicare-certified home health agencies 
in the entire state.
    I think, for those of you who understand cost-based 
reimbursement, if you have, I'm just going to say a million 
Medicare-eligible home care patients in the state of New 
Jersey, and you're cost-based reimbursed, it's going to cost 
you more per beneficiary if you have 500 agencies versus 60 
agencies, because you're paying the administrative overhead for 
every one of those agencies.
    I think, when you talk about whether it's state block 
grants or thinking of some way, you have to, until we get to a 
prospective pay system, while we are still in a cost-based 
reimbursed system for home care, that the more agencies taking 
care of the same amount of patients is going to cause you to 
spend more money. That is one thing.
    Second, I have to say that the region we are in, which 
includes New York and New Jersey, I believe has one of the 
toughest fiscal intermediaries in the Medicare program, and I 
think that we have not been allowed to exploit the Medicare 
program.
    We are allowed to provide to Medicare patients what 
conditions of participation say that Medicare beneficiaries are 
allowed. We have very few people that get daily home health 
aides.
    We get what is called a 488 called in, which is the HCFA, 
the intermediary's check to call the record in and check 
medical necessity, check homebound status, and check all of 
that.
    I do believe those two factors have kept our visit number 
per beneficiary low, and then our cost per visit low, because 
of the CON issue.
    Mr. McDermott. I have a Visiting Nurse Association in 
Seattle that has an average of 17 visits per case.
    Ms. Odgren. Are you a high-Medicare managed care?
    Mr. McDermott. Yes. Sure. We've had it for a long time. We 
have a 30-visit average. We have some that are obviously below 
that, one is 17.
    When you take a 15 percent cut in that, you are up against 
the wall. I think that there is clearly going--and if the 
Visiting Nurse Association goes out of business, it will be the 
oldest, the longest-standing agency in the state that will go 
bankrupt around the 1st of October.
    They're bankrupt now, but they're going to have to say it 
publicly, at some point. That's why I think that the chairman 
is right in calling this hearing.
    I don't have a clear answer. I don't know how we mandate 
tough fiscal intermediaries in Medicare, because we have one, 
too.
    Chairman Thomas. Will the gentleman yield?
    Mr. McDermott. Yes.
    Chairman Thomas. We did in the BBA. At least, we began the 
process.
    I believe the gentleman from Louisiana's attempt to find 
some linkage between Texas, Oklahoma, et cetera is the fact 
that it's in the same region and that, while we mandated 
Section 4614, normative standards for home health care claim 
denials, including the frequency and duration of home health 
services which are in excess of normative guidelines the 
Secretary shall establish, by regulation, we set up a process 
to begin to examine the out line and figure out why regions 
utilized the home visits more than others, and HCFA will not 
implement this section.
    We are currently at war over their failure to do a number 
of things under the BBA, including what is an obvious step to 
begin to get adjustments on usage between regions.
    Now, I agree with everything you said about getting people 
to look at their state level, and that is one of the reasons it 
bothers me a little bit, but there is easy stuff that we can do 
here that we have already done.
    I know the gentleman is not aware of every particular 
segment, but this one was important to me because they kept 
telling me they had no standards, they couldn't apply anything.
    I said, ``The least you can do is a relative comparison 
between what one region is doing and another which produces the 
outliers, then make them explain why they're doing more than 
the others.''
    We are hearing some of the reasons: the certificate of 
need; the very tough intermediaries; managed care as a kind of 
a third party overseer for what is going on, versus wild 
entrepreneurial areas with no certificate of need, with a 
regional intermediary that is not doing the same thing that 
somebody else is doing.
    All those could be put into the normative standard 
structure, and it would be a useful tool, had they begun the 
process of implementing that section.
    As a matter of fact, it was supposed to apply to services 
furnished on or after October 1, 1997. We should have had a 
half to three-quarters of a year of experience in looking at 
this data. We don't have it because HCFA won't do the job that 
the law said they should do.
    Mr. McDermott. Mr. Chairman, could I just ask, though, the 
bill passed when?
    Chairman Thomas. It was effective immediately. It was on 
the beginning of the fiscal year of 1997. That was the 
effective date on the bill.
    Mr. McDermott. What I am suggesting is that perhaps having 
it effective immediately, you can't have the rules and 
regulations prepared that quickly. I mean, you got to give them 
a little time. You may say they haven't done enough, but I----
    Chairman Thomas. It's normative standards. They already 
have the data coming in by region. All you have to do is 
compare the regions.
    Mr. McDermott. I would like to work with you on it. The 
reason I came to this hearing is because I think every Member 
of Congress is going to be in trouble in their district after 
the 1st of October when these home health agencies, the really 
effective ones, and the old standing ones, are announcing in 
the paper that they are going bankrupt.
    That is going to be a real crisis for a lot of people in 
the election.
    Chairman Thomas. I agree.
    Mr. McDermott. I really think this is something we must do 
something with.
    Chairman Thomas. I would tell the gentleman that, although 
I have heard that suggestion, block grants to states, the 
problem is that money then would be going to the states which 
have refused to take what I would consider reasonable and 
appropriate steps.
    The next problem is that during the next Congress, you are 
back lobbying for a larger block grant to maintain the same 
discrepancies that weren't corrected in the first place by the 
state that was getting the money, so it doesn't have to make 
the tough decisions. To me, that is a circular problem.
    We've got to go to the heart of it and figure out a way to 
create a system which, on a cooperative basis, the people who 
are doing a good job have got to get far more aggressive in 
their associations and demand that the people who are trying to 
maintain the old system, who are presenting arguments of 
``Don't do anything, just bail us out, because it's a crisis,'' 
that will not carry the day.
    Go back inside. Get your associations to get serious about 
who is responsible and who is not in your area of activity. 
What you do is important. You've got to look inward.
    We will help you in terms of trying to make the system as 
fair as possible. But there has to be a settling out in this 
industry, and all of us want the settling out to be the quality 
care folk.
    Mr. McDermott. Mr. Chairman, I was making my suggestion 
about the block grant following the aphorism of Benjamin 
Franklin that the imminence of hanging tends to focus men's 
minds.
    If they know that they have a fixed period in which they 
are going to be faced with real problems, there would be action 
in those states, there is no question about it, or else they 
would pay the price.
    I think that's our problem. We either micromanage it, or we 
do it bluntly. I'm not sure I know how to micromanage from this 
level, but I do know how to be blunt.
    Chairman Thomas. My concern is, that listening to the 
recent testimony, I don't know that the message would 
necessarily get through. It would probably create more chaos.
    The gentleman from Louisiana had a couple of additional 
questions.
    Mr. McCrery. Thank you, Mr. Chairman. Mr. Indest, in your 
testimony, written testimony, I think you say that, since 
sometime in 1997, Louisiana has lost 80-something home health 
agencies. Is that correct?
    Mr. Indest. Those are statistics I received from my state 
home care association.
    Mr. McCrery. Okay. Do you have any statistics on how many 
new agencies have been created since that same point in time?
    Mr. Indest. One thing that I stated in my written 
testimony, that I did not state earlier, currently in 
Louisiana, I think, as of two years ago, there was a moratorium 
on the establishment of home health agencies.
    I do not have those statistics, but with a moratorium I 
would hope that none.
    Mr. McCrery. So there is a net decrease of 80-something 
since this went into effect?
    Mr. Indest. Yes, sir.
    Mr. McCrery. I want to explore for a minute with all of you 
the question of co-pays, because every time we mention co-pay, 
industry just says, ``That won't work.''
    What I am talking about, and I think the chairman is 
talking about, is the possibility of giving agencies the option 
to charge a nominal co-pay, $5 per visit, where there is some 
cap on the number of visits that you could charge a co-pay for, 
and then you, the agency, could discriminate at your will.
    If you think some of your patients are unable to pay, don't 
charge them, but those who are, charge them, and then you have 
some income to supplement your activity.
    What's wrong with that?
    Mr. Indest. Could I respond to that, Mr. McCrery?
    Mr. McCrery. Anybody. Yes, anybody.
    Mr. Indest. Am I understanding you to say that we will be 
able to charge the co-pay and keep that money?
    Mr. McCrery. Yes.
    Mr. Indest. It will not be deducted from our cost of doing 
business?
    Mr. McCrery. Well, we can work on that.
    Mr. Indest. I think my understanding of co-pays is that it 
is a built-in loss to the home health agency. If you don't 
collect it, you're already operating in a cost-based system----
    Mr. McCrery. We can discuss this. But it doesn't make any 
sense to me to give it to you in one hand and take it away in 
another. That doesn't help you.
    Mr. Indest. You've just painted a very different light on 
the way I understand co-pay.
    Mr. McCrery. I mean, let's just explore this for a minute. 
We're stuck in the budget, because we did some stuff that got 
savings, and now we can't, even though we got more savings than 
we thought, we can't go back and spend the extra savings. So 
we're stuck.
    We can't give you any more money. That's what I've 
understood at this hearing today, from the administration and 
from conversations with Members of Congress. We can't find any 
new money to give you.
    What I'm suggesting is, we give you the option to get new 
money yourself, from your own patients. What's wrong with that? 
$5 a visit. It's called balance billing, $5 a visit. Hey, a lot 
of folks out there can probably afford $5 a visit. Some can't. 
Why not leave it up to the agencies to decide?
    I mean, that's a way to help you out of this interim--and 
we could do away with that option at the time we get a 
prospective payment system. I'm just trying to figure out a way 
to help us through this problem time that we are experiencing.
    Ms. Odgren. Thank you. I would suggest that, if we are 
going to look at co-pay, it really needs to be an across-the-
board.
    If I have a per-beneficiary limit of $1,950, in order to 
survive, I have to charge a $5 co-pay to those people who, on 
my sliding fee scale, can afford to do that, the agency down 
the street that has a $3,300 doesn't have to, how long am I 
going to be in business?
    Mr. McCrery. Well, that's the market, you know. Maybe we 
should try to get back a little bit to the market. That would 
help. In fact, I'm of the opinion that, if people actually had 
to pay something for what they get, utilization would go down.
    I mean, if you want to get into it, I can get into that 
with you, and we can just do away with all this stuff and let 
people pay.
    Chairman Thomas. Will the gentleman yield?
    Mr. McCrery. That would be a lot better solution than a lot 
of this junk that we are trying to do in micromanaging the 
health care system from here.
    Chairman Thomas. Will the gentleman yield?
    Mr. McCrery. Yes.
    Chairman Thomas. We keep talking about low income, and how 
difficult it is for them to operate. It's my understanding that 
Georgia has a co-pay.
    Mr. Knight. For the Medicaid system?
    Chairman Thomas. For the Medicaid system.
    Mr. Knight. That is correct.
    Chairman Thomas. How much is it?
    Mr. Knight. $2, I believe, per visit.
    Chairman Thomas. How good are you at collecting it?
    Mr. Knight. Not very good at all.
    Chairman Thomas. If we gave you a $5 co-pay in the rest of 
the income range, in terms of the patients, you would be 
better?
    Mr. Knight. If that is an option to explore, to help offset 
the challenge that we have on the 15 percent number for next 
October, we would love to work with this committee and you, Mr. 
Chairman, on that thought.
    I think that there are other methods of managing 
utilization, other than that. I don't disagree that the co-
payment system that exists in other parts of the health care 
system is working.
    What I think I take exception to is the fact that it is 
cost reductive, as we have heard it, and as it has been 
presented in the past. We are not even receiving all costs from 
Medicare, to begin wit. There are some disallowed or nonallowed 
costs, and this becomes yet another opportunity for us. So----
    Chairman Thomas. I would tell the gentleman that his 
statement is absolutely correct. The gentleman from Louisiana 
is drilling a wildcatter here, and we don't know whether it's 
dry or not, because we haven't discussed this proposal before.
    My belief is it probably a dry well, because my concept was 
an agency optional passthrough but, frankly, it was back to the 
old traditional, the money comes through and it either comes 
from you or it comes from the beneficiary.
    The decision as to where it comes from is up to you, to 
provide money to be able to do something like defray the 15 
percent reduction, because that would be kind of a revenue 
neutral way, on a passthrough basis, to remove what I consider 
to be a far more onerous hammer that has a $4.1 billion price 
tag that, if we can't get rid of that--let me say it another 
way, and I'll give the time back to the gentleman.
    If you had a choice--which nobody wants to do in this 
industry, they just want us not to do anything--if you had a 
choice between the 15 percent reduction going into effect on 
its current date, or a $5 or $8 co-pay, which would replace the 
minus 15 percent, but it really wouldn't be a co-pay, it would 
be an agency optional passthrough, and you have only two 
choices, which one would you choose?
    [No response.]
    Chairman Thomas. I know. You want moratorium. You want to 
go back. You have two choices. Anybody, reaction?
    Mr. Knight. I think, in our particular situation, it would 
need to be studied, because I'm not sure today that the 15 
percent wouldn't be a better hit if I had to take one of the 
two, than the $8 co-pay. I'm not sure how that lines up.
    I think that, when you think about the administrative costs 
associated with that, which have not been factored into any 
year, much less 1994----
    Chairman Thomas. I understand.
    Mr. Knight [continuing]. It is a little bit difficult to 
sit here on the fly and make a decision and answer, you know 
that question intelligently.
    Chairman Thomas. All I'm telling you is that that should 
have been the kind of discussions that you folks were making as 
you were thinking about coming here to tell us how to solve the 
problems, because those are the kind of decisions that we're 
going to make with or without your input. I would much rather 
make those kind of decisions with your input.
    Ms. Brock, what do you want, minus 15 or the agency 
optional passthrough?
    Ms. Brock. I think both of them are going to make our lives 
totally impossible.
    Chairman Thomas. I understand that.
    Ms. Brock. I think if we had a smaller co-pay, that might 
be more realistic.
    Chairman Thomas. $5. Going once.
    Ms. Brock. I think they're both impossible. If I had to 
pick, I would pick the co-pay.
    Chairman Thomas. Thank you very much and thank you for 
making a decision. I appreciate that very much. Mr. Indest?
    Mr. Indest. Would the co-pay be, as Mr. McCrery, 
Congressman McCrery described it?
    Chairman Thomas. Notwithstanding your state affiliation, 
the answer is a flat out California no. [Laughter.]
    Mr. McCrery. I think you should explain exactly what your 
proposal is, in case they don't understand your jargon.
    Chairman Thomas. The proposal is an agency optional 
passthrough, for example, a $5 levy. The agency could pay it, 
or the agency, at its option, could pass it to the beneficiary.
    Mr. Indest. If I had to state right now, I would go with 
the co-pay. Without thoroughly studying----
    Chairman Thomas. Agency optional passthrough.
    Mr. Indest. Yes, sir.
    Chairman Thomas. Not a co-pay.
    Mr. Indest. Yes, sir.
    Chairman Thomas. Ms. Odgren?
    Ms. Odgren. I'm just trying to think----
    Chairman Thomas. I understand.
    Ms. Odgren [continuing]. From the cost perspective.
    Chairman Thomas. All I'm trying to do is get you folks to 
realize the kind of decisions that we're going to have to make, 
and we would love to begin sharing the decision making process 
with you.
    Ms. Odgren. I would think that the agency optional 
passthrough would be the----
    Chairman Thomas. Agency optional passthrough. All right. 
And the brain trust decides. Ms. Palsgaard?
    Ms. Palsgaard. I think if you could look at how much the 15 
percent, if you meet the budget target, how much of the 15 
percent would be required to do that, or is there more. I'm 
just----
    Chairman Thomas. No, you don't understand the way the game 
is played.
    Ms. Palsgaard. I do.
    Chairman Thomas. If we change the baseline, we are 
obligated to find the money. It is a $4.1 billion cost. I have 
to replace $4.1 billion if I drop the 15 percent reduction.
    I'm trying to figure out a way to soften the blow in terms 
of raising some money that might be a more palatable way, not 
necessarily out of your pocket, but out of the larger 
universe's pocket, rather than just yours, or you can choose 
the option and it comes out of your pocket.
    That's the agency optional passthrough--15 percent 
reduction on the date that it currently occurs, or an agency 
optional passthrough.
    Ms. Palsgaard. For a co-pay?
    Chairman Thomas. No, an agency optional passthrough. You 
decide whether you want to collect it from the beneficiary or 
not.
    Ms. Palsgaard. I think that, if I speak as my agency----
    Chairman Thomas. I'm asking you talk for yourself.
    Ms. Palsgaard. Okay. If I speak for our agency, we have a 
very, very poor clientele in our county right now, and it would 
be very difficult for us to be able to do any kind of co-pay 
collection.
    There are certainly people that could afford it, but the 
majority of the people in our Central Valley, as you know, are 
farmworkers----
    Chairman Thomas. What percentage are on Medicaid?
    Ms. Palsgaard. In our service area, we have----
    Chairman Thomas. Your clients.
    Ms. Palsgaard. Our clients.
    Chairman Thomas. Your clients.
    Ms. Palsgaard. Our clients have a low percentage of 
MediCal, probably, in Merced County.
    One of the other things that I didn't remember when we were 
talking about the lower utilization in California was the in-
home supportive service program in California, that maybe is a 
reason there is not as much help there.
    Chairman Thomas. That's another fallback that softens the 
blow on the number of visits, if there is no such agency.
    Ms. Palsgaard. I suppose, yes.
    Chairman Thomas. I just wanted to finally get you into the 
level of the kind of decisions that we are going to be looking 
at.
    Mr. Cardin. Would the chairman yield just for one second?
    Chairman Thomas. Certainly.
    Mr. Cardin. I think this is a very, very helpful 
discussion, but I would just put on the table that we have to 
realize that this is an interim situation.
    Chairman Thomas. Exactly.
    Mr. Cardin. What that is going to mean, as far as your 
administration of home health services, an ability to keep the 
network afloat until the PPS system comes into effect, I think 
we need your good counsel as to what these different--of 
course, we assumed the 15 percent was going to go in when the 
PPS went into effect. We never assumed that the 15 percent was 
going to be before the PPS.
    Chairman Thomas. That's another renege on HCFA's part.
    Mr. Cardin. I agree. We thought the new system would be in. 
So we never thought that you would have to implement that under 
the IPS.
    Chairman Thomas. Correct.
    Mr. Cardin. But now, if you are going to be asked to 
implement some type of a collection process, on top of the IPS, 
before the PPS comes into effect, what does that mean as far as 
the ability to efficiently administer a program, until we can 
get the PPS into effect?
    Chairman Thomas. Again, all of us are committed--in fact, 
we just had another conversation--to go try to find some money, 
if we can, but you have to be realistic in terms of the needs 
and the demands and the amount of money that this area was 
changing, which was absolutely necessary for all the reasons 
that you provided, in certain states, but there are victims in 
other states that were doing a good job, that we don't have the 
ability to select out with criteria and data yet, that we will 
with the prospective payment system.
    If you don't want us to impose something on you that we 
will impose, we've got to get feedback from you on options, 
just like the difficult one I made you go through.
    Ms. Odgren.
    Ms. Odgren. Yes. I would question, Chairman Thomas, when 
you gave us the option of choosing the passthrough or the 15 
percent, was that to pay, the passthrough was to pay for the 15 
percent?
    Chairman Thomas. Roughly, change the structure of where the 
money comes from so you could then deal with having an option 
of helping cast off that cost, because the 15 percent is yours.
    Ms. Odgren. It doesn't impact any decision that this 
committee will make about what will happen in 1998? I mean, is 
it related in any way to, you know, the blend?
    Chairman Thomas. No. What we would be doing is looking at 
options of where we get money, if we could sweep the floor, do 
some other things.
    We would look at, in making changes, the possibility of 
including in the package reducing the 15 percent reduction but 
there would have to be a revenue source that assists us in 
replacing it.
    One of the revenue sources could possibly be the agency 
optional passthrough, which not only produces a portion of the 
revenue that we have now denied, but that, if the marketing 
situation is such that you were able to pass it through, it 
might have a certain beneficial behavioral restructuring, as 
Dr. Wilensky testified, in terms of the MedPAC argument for 
what would be a traditional co-pay.
    But I didn't just want to do a co-pay. I thought the agency 
optional passthrough would give you some decision in a 
marketing way that might help some, since we have so few tools 
available to let you make decisions on your own. That was the 
reason.
    Ms. Odgren. It's not really taxing the elderly? I mean, a 
co-pay sometimes is considered taxing.
    Chairman Thomas. But it's your decision.
    Ms. Odgren. Right. That's what I'm saying. So----
    Chairman Thomas. My assumption is you won't go taxing the 
poor folk that you all are dedicated to serving----
    Ms. Odgren. Right.
    Chairman Thomas [continuing]. And that there may be some 
individuals where it would be perfectly fine.
    Ms. Odgren. Perfectly fine to do that.
    Chairman Thomas. That's just one little exercise that we 
are going to have to go through about 10 times, to come up with 
a policy, because we are going to come up with a policy.
    We are going to replace the current policy. It will create 
new winners and new losers. We will do it before we adjourn.
    Our goal is to try to minimize simply reshuffling the 
dollars and creating new winners and losers. Everybody has to 
participate, to be as positively creative as we can. That means 
you folks and your associations.
    If we ask for information again, to provide us with the 
answer that three-quarters of your agencies are going to shut 
down within a month, that the only options that we really 
should be looking at are moratoriums, you know, et cetera, or 
pick our own blend, then we simply have failed in our ability 
to include you in the process of coming up with a relook at the 
solution to the interim payment factor.
    I would very much like to include you in the decision that 
we come up with. All of us would like to include you.
    With that, thank you all very much. The subcommittee stands 
adjourned.
    [Whereupon, at 2:27 p.m, the hearing was adjourned.]
    [Submissions for the Record follow:]



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