[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
REPORT ON MEDICARE PAYMENT POLICIES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MARCH 2, 1999
__________
Serial 106-15
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
58-251 CC WASHINGTON : 1999
------------------------------------------------------------------------------
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COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia
SAM JOHNSON, Texas JIM McDERMOTT, Washington
DAVE CAMP, Michigan KAREN L. THURMAN, Florida
JIM RAMSTAD, Minnesota
PHILIP S. ENGLISH, Pennsylvania
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C O N T E N T S
__________
Page
Advisory of February 23, 1999, announcing the hearing............ 2
WITNESS
Medicare Payment Advisory Commission, Hon. Gail R. Wilensky,
Ph.D., Chair; accompanied by Murray N. Ross, Executive Director 9
SUBMISSIONS FOR THE RECORD
American College of Surgeons, statement.......................... 38
American Medical Association, statement.......................... 41
REPORT ON MEDICARE PAYMENT POLICIES
----------
TUESDAY, MARCH 2, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1 p.m., in
room 1100, Longworth House Office Building, Hon. William M.
Thomas (Chairman of the Subcommittee), presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
FOR IMMEDIATE RELEASE CONTACT: (202) 225-3943
February 23, 1999
No. HL-2
Thomas Announces Hearing on
Report on Medicare Payment Policies
Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on the Medicare Payment Advisory Commission's
(MedPAC) recommendations on Medicare payment policies. The hearing will
take place on Tuesday, March 2, 1999, in the main Committee hearing
room, 1100 Longworth House Office Building, beginning at 1:00 p.m.
Oral testimony at this hearing will be from invited witnesses only.
The sole invited witness will be the Honorable Gail R. Wilensky, Ph.D.,
Chair, Medicare Payment Advisory Commission. However, any individual or
organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee and for inclusion in the
printed record of the hearing.
BACKGROUND:
Established by the Balanced Budget Act of 1997 (BBA) (P.L. 105-33),
MedPAC advises Congress on Medicare payment policy. The Commission is
required by law to submit annually by March 1, its advice and
recommendations on Medicare payment policy in a report to the Congress.
The BBA directs the Commission to review specific topics related to
various aspects of the Medicare+Choice program, such as payment
methodology, risk adjustment and risk selection, and quality assurance
mechanisms. Additionally, the Commission is required to review payment
policies under the Parts A and B fee-for-service system, particularly
factors affecting program expenditures for hospitals, skilled nursing
facilities, physicians and other sectors.
In announcing the hearing, Chairman Thomas stated: ``The Committee
continues to value MedPAC's technical advice as Congress restructures
and strengthens the Medicare program for our nation's seniors. This
hearing will offer the Committee an important opportunity to explore
in-depth MedPAC's recommendations for improving Medicare payment
policies in a variety of areas.''
FOCUS OF THE HEARING:
The hearing will focus on MedPAC's March 1999 recommendations on
Medicare payment policies as required by the BBA. Among the areas to be
discussed will be the Medicare+Choice program and the fee-for-service
components of the Medicare program.
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16, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
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Chairman Thomas. The Subcommittee will come to order.
Two years ago, Congress made unprecedented changes in the
Medicare Program that were incorporated in the Balanced Budget
Act of 1997. In strengthening Medicare for current
beneficiaries and setting a direction for future generations,
the Balanced Budget Act changes created the new Medicare+Choice
Program that allows seniors to choose their health plans from a
menu of private plan options. The Balanced Budget Act also
continued the process of modernizing the fee-for-service
Medicare from the sixties-style, cost-based reimbursement to
prospective payment systems and simple fee schedules that are
common practice in the private sector.
However, it is a far cry from Medicare's administered
pricing systems to a market environment, in which competition
drives the price of services. For a variety of reasons,
Medicare must periodically adjust its payments rates and
systems to reflect changing conditions. Up to 2 years ago, we
had the occasion to host two commissions: the old Prospective
Payment Assessment Commission, ``ProPAC,'' and ``PhysPRC,'' the
Physician Payment Review Commission.
Just as the delivery of health care is being consolidated,
we decided to consolidate our advisory structure. So, assisting
Congress in monitoring the changes made in virtually every part
of the Medicare Program, we created the Medicare Payment
Advisory Commission, or ``MedPAC.''
MedPAC's mandated role is to provide technical advice to
the Congress on all of the complex payment policies in the
administered pricing system of Medicare. Congress also directed
MedPAC to review, specifically, the implementation, design and
development of the Medicare+Choice Program, since so much of
that program was whole-cloth, or based on only a partial
comfort level of information, since we had not had an adequate
data collection structure in the past.
As the administration implements the BBA, the Balanced
Budget Act, the Congress, and in particular, the Subcommittee
is going to be looking to MedPAC for its technical advice and
counsel. Contrary to our usual procedure, our only witness
today is Dr. Gail Wilensky, the Chair of MedPAC, who will
afford us the opportunity to explore a bit more in depth than
we usually have the Commission's recommendations for fiscal
year 2000 Medicare payments.
[The opening statement follows:]
Opening Statement of Hon. Bill Thomas, a Representative in Congress
from the State of California
Two years ago, Congress made unprecedented, fundamental
changes in the Medicare program by passing the Balanced Budget
Act of 1997 (BBA). In strengthening Medicare for current
beneficiaries and setting a direction for future generations,
the BBA created the new Medicare+Choice program that awards our
seniors the freedom to choose their health plans from a menu of
private plan options.
The Balanced Budget Act also continued the process of
modernizing the fee-for-service Medicare from 1960s-style cost-
based reimbursement to prospective payment systems and simple
fee schedules that are common practice in the private sector.
However, it's a long journey from Medicare's administered
pricing systems to a market environment in which competition
drives the price of services. For a variety of reasons,
Medicare must periodically adjust its payment rates and systems
to reflect changing conditions that are not automatically
addressed by the competitive market.
To assist Congress in monitoring the changes made in
virtually every part of the Medicare program, the BBA created
the Medicare Payment Advisory Commission, or MedPAC. MedPAC's
mandated role is to provide technical advice to the Congress on
the complex payment policies in Medicare's administered pricing
systems. Congress also directed MedPAC to review specifically
the implementation, design and development of the
Medicare+Choice program.
As the Administration implements the BBA, the Congress, and
in particular this Subcommittee, look to MedPAC for its
technical advice and counsel. Our only witness today is Dr.
Gail Wilensky, the Chair of MedPAC, which will afford us the
opportunity to delve deeply into the Commission's
recommendations for FY 2000 Medicare payments.
Chairman Thomas. And with that, I recognize my friend and
colleague from California, the Ranking Member, Mr. Stark.
Mr. Stark. Mr. Chairman, thank you very much. Let me first
congratulate MedPAC for this year's report. It addresses many
of the issues that face us in the Medicare Program and provides
recommendations that Congress should consider in addressing
those issues. I am particularly pleased that they recognize
HCFA's resource problems. Published in the report as sort of a
sidebar, is the letter published in the Journal of Health
Affairs, written by Gail Wilensky and Joe Newhouse. The experts
agree that we need to have additional resources to administer
HCFA, and management of the plan should not be partisan. We may
have partisan disagreements on what the plan should be, but
once the plan is in place we should see that the government can
operate as efficiently as possible to carry out our mandates. I
hope we can work together as a Subcommittee to make a joint and
bipartisan recommendation to the Budget Committee and the
Appropriations Committee for HCFA to get the resources to carry
out whatever mandate it is that Congress will give them.
We also have to find a way to make the funding a bit more
stable. Perhaps through direct appropriations, the way we fund
PROs or the Medical Integrity Program, would be a solution to
end this annual hassle that we have to go through. I would be
glad to work with the Chairman, in any way he would consider,
if we could institutionalize the process in seeing that HCFA
gets reasonable resources. I would like to ask that the text of
the Wilensky letter be put in the record.
Chairman Thomas. Without objection.
[The opening statement and attachment follows:]
Opening Statement of Hon. Fortney Pete Stark, a Representative in
Congress from the State of California
Mr. Chairman, first, let me congratulate the Medicare
Payment Assessment Commission for this year's report. It
addresses many of the issues facing Medicare at this time, and
it provides recommendations that the Congress should consider
in addressing those issues.
I am particularly pleased that the Commission recognizes
the need to address HCFA's resource problems, and has chosen to
endorse and include in their Report an open letter published
recently in the journal, Health Affairs. This letter was signed
by a nonpartisan group of our Nation's leading health policy
experts, including the Chair and Vice-Chair of MedPAC, Gail
Wilensky and Joe Newhouse. These experts agree that HCFA must
have additional resources if it is to administer the Medicare
program in the way that we all agree that it should be
administered.
Mr. Chairman, management of Medicare should not be a
partisan issue--we all want HCFA to be well managed. As the
Congress expands HCFA's responsibilities, HCFA's resources must
also be increased. I hope that we can work together as a
Subcommittee to make a joint, bipartisan recommendation to the
Budget Committee and the Appropriations Committee for HCFA's
resources for this year. We must also find a way to make HCFA's
funding more stable, perhaps through a direct appropriations
method similar to the way that we fund the Peer Review
Organizations (PROs) and the Medicare Integrity Program (MIP).
Mr. Chairman, the Commission recommends against Congress
modifying payment rates to Medicare+Choice plans at this time.
In several ways, we are currently overpaying Medicare managed
care plans, and I recently learned from the HCFA Administrator
that, because of an error in calculating the 1997 base-year
rates, the BBA actually increased payments to managed care
plans, rather than reducing them.
Last year, the MedPAC Report described a technical
``glitch'' in the BBA in which the 1997 base year rates for
calculating payments to Medicare+Choice plans are overstated by
about 3 percent. CBO has estimated that the resulting
overpayment to plans is $8.7 billion over 5 years and $31
billion over 10 years. I recently received a letter from the
HCFA Administrator informing me that this overpayment is
greater than the entire savings from managed care plans
included in the BBA. The Administrator says, ``the savings from
the reductions (in the BBA), once fully implemented, do not
even equal the increased costs due to the overstatement.''
Thus, the other savings in the BBA do not even correct for this
mistake, let alone reduce the earlier, underlying overpayment
to managed care plans. In fact, the BBA actually increased
payments to managed care plans, rather than reducing them.
In addition, the HHS Inspector General reported last year
that Medicare+Choice plans are paid some $1 billion annually in
inappropriate payments based on their own inflated reporting to
Medicare of their administrative costs. I note that the MedPAC
report suggests that HCFA require separate reporting of
administrative costs and profit projections, implying that
these overpayments should be stopped.
I applaud the Commission for recommending that HCFA be
permitted to proceed with its risk adjustment approach.. The
managed care industry is saying that risk adjustment was meant
to be budget neutral to the HMOs. That seems like nonsense to
me; risk adjustment is meant to adjust for higher-cost or
lower-cost beneficiaries throughout all of Medicare, and not
just to shift money around among the HMOs. By phasing in risk
adjustment, we are already giving the industry a $4.7 billion
gift, and hurting the best HMOs, which would be helped by risk
adjustment.
Mr. Chairman, if the Medicare+Choice program is to be
effective, beneficiaries need to feel comfortable trying it
out. The plan withdrawals last year legitimately scared many
beneficiaries. It seems to me that there are beneficiary
protections that can be added to ease some of their concerns,
and I have introduced a bill (H.R.491) to address those issues.
The managed care industry has said that last year's
withdrawals were just the tip of the iceberg, and that we
should expect more plans to withdraw from Medicare this year.
Last year, the decision for a plan to withdraw from Medicare
was made easier by the fact that withdrawing plans would not
face a five-year lock-out from future participation in
Medicare. This year, that five-year lock out applies. I will be
interested to hear what MedPAC expects to happen this year,
both in plan withdrawals and in benefit reductions and premium
increases.
On post-acute care, the Commission expresses concerns
about the methodology that HCFA has used for the Skilled
Nursing Facility (SNF) prospective payment system and is
planning to use for rehabilitation facilities. The Commission
prefers a discharged-based system rather than the per-diem
system that HCFA is using. I, too, have expressed similar
concerns, and I look forward to discussing this issue today.
This year, MedPAC goes even further than last year's
report in recommending an ``independent assessment of need for
beneficiaries receiving extensive home health services to
ensure the appropriateness of such care.'' I followed MedPAC's
recommendations from last year and introduced legislation (H.R.
746) to establish such a system of home health case management.
My bill would require long-term home health patients to have
their home health care planned by an independent case manager,
who would be paid by Medicare on a fee schedule, or HCFA would
have the option of using competitive bidding in regions where
enough competition existed to make that appropriate.
The Commission recommends that the Congress establish in
law clear eligibility and coverage guidelines for home health
services. We need the assistance of the Commission on this, and
I also suggest that the Commission evaluate whether the home
health benefit should be split into two parts, an acute care
benefit and a long-term benefit, reflecting the two groupings
of patients that use the program, with separate eligibility and
coverage requirements.
The Commission recommends making Medicare payment methods
and amounts for ambulatory services consistent across settings.
I agree, and last year I introduced a bill to achieve exactly
this objective. The Commission also recommends applying the
physician Sustainable Growth Rate (SGR) across all ambulatory
settings, and I would ask why not apply it to all of Medicare?
The Commission recommends two cost sharing issues--it
recommends reducing copayments for hospital outpatient services
and instituting a copayment for home health services. I agree
with the recommendation to reduce cost sharing for hospital
outpatient services, and I have introduced a bill (H.R. 421) to
recoup for Medicare beneficiaries the savings that they lost
this year when HCFA was unable to implement the BBA changes for
those services. The Commission recommendations raise a larger
question of whether it is time to think about restructuring all
Medicare deductibles and copayments--and Medigap insurance--so
that they are more like cost sharing in managed care.
Finally, Mr. Chairman, I want to make a comment regarding
conflicts of interest in accreditation organizations. The
MedPAC Report cites a HCFA rule that eligible accreditation
organizations for quality of care would need to operate
nationwide and be free from control by the organizations that
they accredit. The Report notes that this rule for managed care
plans is inconsistent with Medicare accreditation rules for
hospitals, and notes that this rule might create problems for
NCQA, which has HMO members on its board.
It seems to me that the best way to make these Medicare
rules consistent would be to apply the managed care rule
throughout Medicare, to hospitals and other Medicare providers.
We are constantly finding that JCAHO, which is heavily
influenced by the hospitals that it regulates, is pulling
punches and doing what the people who pay it want. Their
quality of care work on nursing homes, for example, has been
awful. I have introduced legislation calling for more public
representatives on these accreditation boards. Medicare and the
public are not well served and will never trust these groups
until they are free of conflicts of interest.
OPEN LETTER TO CONGRESS & THE EXECUTIVE
Crisis Facing HCFA & Millions Of Americans
The signatories to this statement believe that many of the
difficulties that threaten to cripple the Health Care Financing
Administration (HCFA) stem from an unwillingness of both
Congress and the executive to provide the agency the resources
and administrative flexibility necessary to carry out its
mammoth assignment. This is not a partisan issue because both
Democrats and Republicans are culpable for the failure to equip
the HCFA with the human and financial resources it needs to
address what threatens to become a management crisis for the
agency and thus for millions of Americans who rely on it. This
is also not an endorsement of the present or past
administrative activities of the agency. Congress and the
administration should insist on a HCFA that operates
efficiently and in the public interest.
Over the last decade, Congress has directed the agency to
implement, administer and regulate an increasing number of
programs that derive from highly complex legislation. While
vast new responsibilities have been added to its heavy
workload, some of its most capable administrative talent has
departed or retired; other employees have been reassigned as a
consequence of reductions in force. At the same time, neither
Democratic or Republican administrations have requested
administrative budgets of a size that were in any way
commensurate with the HCFA's growing challenge.
The latest report of the Medicare trustees points out that
the HCFA's administrative expenses represented only one percent
of the outlays of the Hospital Insurance Trust Fund and less
than two percent of the Supplementary Medical Insurance Trust
Fund. In part, this low percentage reflects the rapid growth of
the denominator-Medicare expenditures. But, even accounting for
Medicare's growth, no private health insurer, after subtracting
its marketing costs and profit, would ever attempt to manage
such large and complex insurance programs with so small an
administrative budget. Without prompt attention to these
issues, the HCFA will fall further behind in its implementation
of the many significant reforms mandated by the Balance Budget
Act of 1997. In the future, the agency also has to cope with a
demographic revolution that it is ill-equipped to accommodate
and with changes in medical technology that will increase
fiscal pressures on the programs it administers.
As the Bipartisan Commission on the Future of Medicare
grapples with the problem of reshaping the Medicare program for
the next millennium, it would do well to consider two important
reforms concerning the HCFA's administration. First, the
Commission should recommend that Congress and the executive
endow the agency with an administrative capacity that is
similar to that found in the private sector. Second, the
Commission should consider ways in which the micro-management
of the agency by Congress and the Office of Management and
Budget could be reduced. Congress and the public would be
better served by measuring the agency's efficiency in terms of
its administrative outcomes (such as accuracy and speed of
reimbursement of various providers), rather than by tightly
controlling its administrative processes. Only if the HCFA has
more administrative resources and greater management
flexibility will it be able to cope with the challenges that
lie ahead of it.
The mismatch between the agency's administrative capacity
and its political mandate has grown enormously over the 1990s.
As the number of beneficiaries, claims, participating provider
organizations, quality and utilization review and oversight
responsibilities have increased geometrically, the HCFA has
been downsized. When the HCFA was created in 1977, Medicare
spending totaled $21.5 billion, the number of beneficiaries
served was 26 million, and the agency had a staff of about
4,000 full-time equivalent workers. By 1997, Medicare spending
had increased almost ten-fold to $207 billion, the number of
beneficiaries served had grown to 39 million, but the agency's
work force was actually smaller than it had been two decades
earlier. The sheer technical complexity of its new policy
directives is mind-boggling and requires the addition of a new
generation of employees with the requisite skills.
HCFA's ability to provide assistance to beneficiaries,
monitor the quality of provider services, and protect against
fraud and abuse has been increasingly compromised by the
failure to provide the agency with adequate administrative
resources. Even with the addition of $154 million to its
administrative budget that Congress included in its latest
budget bill, the likelihood that the HCFA can effectively
implement all of its varied assignments is remote. The Health
Insurance Portability and Accountability Act of 1996 assigns
many new regulatory responsibilities to HCFA but a far larger
task is implementing the Balanced Budget Act (BBA) of 1997. The
BBA has more than 300 provisions affecting HCFA programs,
including the ``Medicare+Choice'' option, which will require
complex institutional changes and ambitious efforts to educate
beneficiaries.
Medicare spending accounts for over 11 percent of the U.S.
budget. Workable, effective administration has to be a primary
consideration in any restructuring proposal. Whether Medicare
reform centers on improving the current system, designing a
system that relies on market forces to promote efficiency
through competition, or moving toward an even more
individualized approach to paying for health insurance,
Congress and the administration must re-examine the
organization, funding, management and oversight of the Medicare
program. Doing anything less is short-changing the public and
leaving the HCFA in a state of disrepair.
Stuart M. Butler, Heritage Foundation
Patricia M. Danzon, University of Pennsylvania
Bill Gradison, Health Insurance Association of America
Robert Helms, American Enterprise Institute
Marilyn Moon, Urban Institute
Joseph P. Newhouse, Harvard University
Mark V. Pauly, University of Pennsylvania
Martha Phillips, Concord Coalition
Uwe E. Reinhardt, Princeton University
Robert D. Reischauer, Brookings Institution
William L. Roper, University of North Carolina at Chapel
Hill
John Rother, AARP
Leonard D. Schaeffer, WellPoint Health Networks, Inc.
Gail R. Wilensky, Project Hope
Mr. Stark. I yield back. Thank you, Mr. Chairman.
Chairman Thomas. I thank the gentleman.
[The opening statement of Mr. Ramstad follows:]
Statement of Hon. Jim Ramstad, a Representative in Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this important hearing
to review MedPAC's March 1999 Report on Medicare Payment
Policies.
The opening of MedPAC's report says that ``Medicare's
payment policies should ensure that beneficiaries have access
to medically necessary care of reasonable quality in the most
appropriate setting. At the same time, the program should not
spend more than is required to achieve that goal.''
I couldn't agree more with this statement. But as easy as
this is to say, it is much more difficult to explain and
ensure. So many variables are subjective and open to
interpretation by beneficiaries, doctors, nurses, hospital
administrators, health plans, the Health Care Financing
Administration (HCFA), the General Accounting Office (GAO),
MedPAC and members of Congress.
As a new member of the Health Subcommittee, I am amazed at
how many different interest groups and lobbyists are presenting
me with so many explanations of what is `medically necessary'
for Medicare beneficiaries, what constitutes reasonable quality
and what are the appropriate settings for providing certain
treatments or performing certain procedures. Even more so, I am
hearing from everyone about ``adequate reimbursement levels''
and why all of them should be raised.
As Chairman Thomas has stated, MedPAC's technical advice to
Congress is very important as we try to decipher all the
information given us from providers and beneficiaries,
especially as we and the National Bipartisan Commission on
Medicare try to find ways to preserve, protect and strengthen
this vital program for current and future beneficiaries.
Thank you again, Mr. Chairman, for calling this important
hearing. I look forward to hearing MedPAC's recommendations for
us from today's witness.
Chairman Thomas. Now I would tell the Chairperson of MedPAC
that any written testimony that she has will be made part of
the record, and she can inform the Subcommittee in any manner
she sees fit in the time allotted to her to begin the process.
STATEMENT OF HON. GAIL R. WILENSKY, PH.D., CHAIR, MEDICARE
PAYMENT ADVISORY COMMISSION; ACCOMPANIED BY MURRAY N. ROSS,
EXECUTIVE DIRECTOR, MEDICARE PAYMENT ADVISORY COMMISSION
Ms. Wilensky. Thank you.
Chairman Thomas. Welcome.
Ms. Wilensky. Thank you. Good afternoon, Chairman Thomas
and Members of the Subcommittee. I am here to share with you
some of the recommendations that we have made from MedPAC to
the Congress regarding payment policy. As you know, we will be
submitting another report in June, where we take on some of the
broader issues involved in Medicare.
As you are aware, the number of recommendations and the
detail in the report is far greater than I can summarize during
my few minutes allotted to me. So, what I thought I would do,
instead, is to try to provide an overview of the areas in which
we support either the BBA's specifications, and/or the specific
activities HCFA has done thus far, and also indicate some of
the areas where we have some concerns about something that is
in the Balanced Budget Act, or something that is part of HCFA's
regulations, to date.
With regard to the areas in which we have general
agreement, they relate to payment in inpatient hospitals, both
for capital and operating expenses. We think the amounts that
were provided as part of the Balanced Budget Act are adequate
and within the range of what we recommended separately. We do,
however, have some concerns about further freezes, which are in
effect further reductions, for hospital inpatient services,
because the data that we have are sufficiently out of date. We
are not able to really see the effect of the Balanced Budget
Act on hospitals, to date. Therefore, to do further reductions
would seem to be too risky, at this point.
Similarly, we recommend staying with the payment structure
for Medicare+Choice, but we do think it is very important to
monitor what happens with the plans in this next year. We are
concerned about the withdrawals. We think it is important for
HCFA to try to find ways to work with the plans to lower some
of the costs of compliance, and to find ways to provide them
with a little more flexibility than they have in the past, such
as varying the benefit package. We strongly support the risk
adjustment mechanism that HCFA has proposed. We think the
phase-in is a good idea. Back loading the effect is a good
idea, and bringing in full-encounter data as soon as possible
is a good idea. We generally support the PPS that has been
proposed for the nursing homes by HCFA.
Let me indicate some areas, however, where we have some
concern with either what is in the statute or the direction
that we see HCFA going. Let me start with an area that goes to
a general principle and that is the ambulatory care bundling
that is in the HCFA outpatient PPS. We have been concerned and
raised this in our last year's testimony that, whenever
possible, it is desirable to have payment either the same or
similar for services that occur across different settings. What
we are concerned about in terms of the outpatient PPS is that
payments in the outpatient will be bundled, but payments to the
physician's office are typically disaggregated. That is not a
good incentive system to put in place.
We are recommending that the unit of payment would better
be the individual service with the ancillary services that are
tied directly to that individual service, and not with the
bigger aggregates that are not part of the outpatient PPS.
There is concern both about the fact that you will overpay and
underpay with some of the bundles that have been suggested. And
the fact that you will have very different payments if the
service is provided in the physician's office, as opposed to
being provided in outpatient, is not a good set of incentives
to have in place.
We also think that there are some changes that would be
desirable with the SGR, the way we try to monitor spending in
terms of softening some of the changes, and also reflecting
changes in the traditional fee-for-service characteristics of
the populations that are left. I see I have very little time
left.
Chairman Thomas. I'll tell the Chairwoman that she can
partially ignore the light.
Ms. Wilensky. Thank you. I will try to be sparing with my
comments. With regard to postacute, we have recommendations for
home care, a few recommendations for the skilled nursing
facilities and some recommendations with regard to the PPS-
exempt facilities. Let me try to summarize them.
With regard to home care, we think it would be very useful
for the Congress to help clarify the eligibility and coverage
rules. This has been an area that has caused a lot of
consternation in the past, and typically has resulted in
judicial decisionmaking. We think it would be better if
Congress could provide clearer rules with regard to
eligibility.
Second, as we indicated last year, we think it is
appropriate to have a modest copayment, subject to a limit with
regard to the amounts that an individual has spent for home
care. We have talked about, in terms of the magnitude of the
copayment, something in the neighborhood of $5, with an annual
limit of about $300. We have, furthermore, suggested that there
be an independent assessment of the individual's further need
for home care, about the point that we would top out with
regard to the copayments. In the examples that we had discussed
in the Commission meeting, which was $5 a visit, we would hit
the $300 limit, which was about the amount we were thinking
about, at 60 visits. About at 60 visits, we would have someone
come in to provide an independent assessment, both to make sure
that seniors got the care that they needed and to reduce some
of the pressure that we have heard has been put on practicing
physicians to continue to OK home visits out into the future.
With regard to the skilled nursing facilities, in general
the resource utilization groups, or so-called RUGs, have seemed
to be adequate with regard to patient classification. Concern
has been raised for the so-called high acuity definitions:
those cases where there are very sick patients who need
ancillary services that had been previously been provided
outside of the per-diem rate. There is concern that these high
acuity cases are not being adequately compensated for under the
existing RUG, or resource utilization group, classification
system.
With regard to the rehabilitation, we believe it is
desirable to move to a discharge-based rehabilitation unit.
Unfortunately, it is not, we believe, possible to use the same
classification systems as the resource utilization group,
because it does not appear to provide as good an explanation of
the variance in expenditures as an alternative. In fact, we
believe that HCFA should try, on a demonstration basis, to use
the suggested classification system for rehabilitation
hospitals when providing rehabilitation services in a skilled
nursing facility. This is consistent with the principle that we
have tried to articulate where we would like to have the
payment for the services the same, irrespective of where the
service is provided. This would be a demonstration that would
be worthwhile with regard to the rehabilitation services that
are available in some skilled nursing facilities.
Finally, with regard to both the PPS-exempt services and
dialysis, we think small increases in payments are needed
relative to the amounts in the Balanced Budget Act. With regard
to the PPS-exempt, we have recommended a four-tenths increase
in per-case reimbursement, with an adjustment made for local
input on the cap. With regard to dialysis, we are recommending
a small increase in the composite rate in the neighborhood of
2.4 to 2.9 percent. We are concerned that the fixed rate that
has occurred over so many years is beginning to have a
deleterious effect on quality and, therefore, are making this
increase in payment.
That summarizes the recommendations. Again, the
philosophical position has been that wherever possible, we
think payment should be the same or similar for services that
are provided in different settings. This is particularly true
of services in postacute, where a similar service may be
provided in rehabilitation, or the skilled nursing facility, or
in home care. It is also true in the ambulatory setting, where
the same service may now be, or will be in the future, provided
in an outpatient and ambulatory surgery center or in the
physician's office. Wherever possible, we think those payments
should be similar or consistent. Thank you for your time and I
would be glad to answer any more questions.
[The prepared statement follows:]
Statement of Hon. Gail R. Wilensky, Ph.D., Chair, Medicare Payment
Advisory Commission
Good morning Chairman Thomas, and members of the
Subcommittee. I am Gail Wilensky, Chair of the Medicare Payment
Advisory Commission (MedPAC). I am pleased to be here this
morning to discuss MedPAC's second annual report to the
Congress on Medicare Payment Policy. This report contains the
Commission's recommendations on Medicare payment policy issues
for fiscal year 2000. We will deliver another report in June
that addresses other Medicare policy issues. These reports
fulfill the legislative mandate we were given in the Balanced
Budget Act (BBA) of 1997 to consider, develop, review, and
advise the Congress on improvements to the program.
The Commission's recommendations represent the collective
judgement of MedPAC's 15 commissioners, based on qualitative
and quantitative analyses of the relevant issues, discussion of
the findings and implications, and deliberations as to the
appropriate policy responses. All of the recommendations were
discussed at meetings open to the general public.
CONTEXT FOR THE RECOMMENDATIONS
The Balanced Budget Act (BBA) of 1997 made wide-reaching
changes to the Medicare program. The BBA established the
Medicare+Choice program, which will allow new types of private
health plans to offer new options for Medicare beneficiaries.
It modified payment updates and mechanisms for Medicare+Choice
plans, hospitals, and physicians, with the intent of slowing
the rate of growth of Medicare spending and making payments
more equitable among providers and across geographic areas. The
BBA also directed the Health Care Financing Administration
(HCFA) to establish new prospective payment systems for skilled
nursing facilities, hospital outpatient departments,
rehabilitation hospitals, and home health agencies.
Broadly speaking, the Commission's recommendations address
four topics: adequacy of payment updates, equity of payments,
technical and regulatory components of new payment mechanisms,
and other issues related to payment concerning coverage and
beneficiary cost-sharing.
For certain services whose payment updates are set in law--
such as those provided by Medicare+Choice plans, inpatient
hospitals under the prospective payment system, and
physicians--MedPAC's recommendations address whether the
statutory updates are appropriate. In general, the Commission
finds the updates to be appropriate and does not recommend
changes to the law. In the case of payment for physicians'
services, however, the Commission recommends changing the
sustainable growth rate mechanism to accommodate changes in the
characteristics of beneficiaries enrolled in traditional
Medicare, such as their distribution across age groups, and
changes in medical technology. The Commission also recommends
making technical changes to the mechanism to avoid large swings
in payment updates.
MedPAC addresses issues of payment equity in a number of
ways. The Commission supports the introduction of a new risk
adjustment system for Medicare+Choice plans. We recommend a new
method of making payments to hospitals that treat a
disproportionate share of low-income beneficiaries. We also
recommend changing payment methods for hospital outpatient and
physicians' services to account for cost differences that are
due to variations in the health status among patients.
For services that the BBA directed to be paid under new
payment systems, MedPAC's recommendations are addressed to the
Secretary of Health and Human Services (the Secretary) and to
the Congress, as appropriate, given the stage of development of
the new system. We recommend technical changes in regulations
that would make payments more equitable within provider groups
and more consistent across types of providers. For example, the
Commission supports the Secretary's efforts to develop a case-
mix system for skilled nursing facilities that better accounts
for use of services other than rehabilitation therapy. The
Commission also supports developing a common unit of payment--a
facility discharge where possible--across providers of post-
acute care.
With respect to other issues, MedPAC's key recommendations
concern services provided in outpatient hospital departments
and by home health agencies. For the former, MedPAC recommends
accelerating the so-called coinsurance buydown provided for in
the BBA. For the latter, we recommend clarifying eligibility
guidelines for receiving home health services and instituting
modest cost-sharing.
SUMMARY OF KEY RECOMMENDATIONS
MedPAC's recommendations are based on the principle that
Medicare's payment policies should ensure that beneficiaries
have access to medically necessary care in an appropriate
setting. At the same time, the program should not spend more
than is required to achieve that goal. This principle implies
that payment rates must be consistent with the costs of
efficiently providing the necessary level of care, offering
fair payment to providers while not interfering with clinical
decisions as to the amount of care or the setting in which it
is provided.
The Commission's recommendations address the following
areas:
the Medicare+Choice program;
the acute care hospital inpatient prospective
payment system;
payments for facilities exempt from the acute care
prospective payment system;
developing new payment systems for post-acute care
providers;
modifying payment for services provided in
ambulatory care facilities;
continuing reform of the Medicare Fee Schedule for
physicians; and
the composite rate for outpatient dialysis
services.
The Medicare+Choice program
One of the major initiatives of the BBA was to make a wider
variety of private health care coverage options available to
Medicare beneficiaries by expanding the previous risk
contracting program into Medicare+Choice. However, changes in
how payment rates are determined, the establishment of new
regulations in implementing the program, and concurrent trends
in the health insurance environment appear to have contributed
to few new options becoming available and, in fact, fewer
Medicare risk plans participating.
It is too soon to tell whether the recent departures from
Medicare stem from systematic problems with the level or
distribution of payment, but we plan to monitor this situation
further in the next year. In the meantime, however, HCFA should
continue to work with the relevant parties to identify changes
in specific regulations or other policies that would reduce the
burden of compliance without compromising the objectives of the
program. Two such changes include moving the deadline by which
Medicare+Choice organizations must file their premium and
benefit proposals and allowing them to vary their benefit
packages by county within their service areas.
The Commission supports the Secretary's plan to phase in,
beginning in 2000, HCFA's interim risk adjustment mechanism for
Medicare+Choice payments. In this mechanism, differences in
expected costliness among enrollees will be based on health
status, as measured by diagnoses from hospital stays in the
previous year, prior entitlement to Medicare benefits based on
disability and eligibility for Medicaid benefits during the
previous year. As quickly as feasible, however, the risk
adjustment mechanism should be refined to incorporate diagnosis
data from all sites of care. These changes should improve the
correlation between payments to Medicare+Choice organizations
and the costliness of their enrollees.
The acute care hospital inpatient prospective payment system
Although the annual updates to the operating payment rate
under the Medicare hospital inpatient prospective payment
system (PPS) are already set in law, MedPAC each year provides
guidance to the Congress on the appropriate update for the
upcoming fiscal year. Based on our ongoing analyses of the
factors that determine year-to-year changes in hospital costs,
we believe that the operating update for fiscal year 2000 that
was enacted in the BBA--1.8 percentage points less than the
increase in HCFA's hospital operating market basket index--will
provide reasonable payment rates. If the current market basket
forecast holds, the update would be 0.7 percent.
The PPS capital payment rate update is set by the Secretary
each year. The Commission's recommendation on the PPS capital
update for fiscal year 2000 is a range between 3.0 percentage
points and 0.1 percentage points below the increase in HCFA's
hospital capital market basket index. Under the current market
basket forecast, an update of between -1.1 percent and 1.8
percent would be adequate.
These recommendations are made in the context of evidence
that the hospital industry has thus far successfully adapted to
a more competitive market by changing its practice patterns and
reducing its costs, but also out of concern that many of the
major effects of the BBA are not yet fully evident. Therefore,
reducing payment rates below the level prescribed in the BBA
would not be prudent, at least for this year.
MedPAC is also recommending a revision in the method of
providing extra payments to hospitals that care for a
disproportionate share of low-income patients. These
disproportionate share payments are made through a complex
formula that determines a percentage add-on to each hospital's
PPS payments based on its location, size, certain other
characteristics, and a measure of care to low-income people.
The measure of care to low-income people, however, excludes
uncompensated care and local indigent care programs, which
represent a large share of the burden faced by many hospitals
that treat low-income patients. Moreover, under the current
formula, rural and small urban hospitals that treat a
disproportionate share of low-income patients receive a much
smaller adjustment (if any) than large urban hospitals with the
same share. Our recommendations are intended to eliminate these
flaws.
Payments for facilities exempt from the acute care prospective
payment system
Certain types of hospitals and distinct part units of
hospitals are exempt from the acute care PPS. These so-called
PPS-exempt facilities are a diverse group that share a common
Medicare payment method established by the Tax Equity and
Fiscal Responsibility Act of 1982. They include rehabilitation,
long-term, psychiatric, children's, and cancer hospitals, and
rehabilitation and psychiatric units in acute care hospitals.
Each of these facilities is paid an amount based on its own
costs in the payment year relative to a per-case target that
depends on its costs in a base year, updated to the payment
year.
MedPAC's analysis of the factors that determine year-to-
year cost increases for PPS-exempt facilities indicates that
the update factor applied to the per-case targets in fiscal
year 2000 should be increased by 0.4 percentage points more
than in the formula prescribed in the BBA. The BBA also
established a category-specific cap on the per-case targets for
rehabilitation and psychiatric facilities and long-term
hospitals but did not provide that these nationwide caps be
adjusted for differences in input prices across areas. We
recommend correcting that technical oversight.
The BBA required that Medicare implement a new payment
system for rehabilitation facilities, and that the Secretary
develop a proposal for long-term hospitals. It did not mention
psychiatric facilities, however. MedPAC encourages additional
research in case-mix classification for payments to psychiatric
facilities, with an eye toward developing a PPS for them in the
future.
Developing new payment systems for post-acute care providers
The BBA mandated substantial changes in Medicare payment
policy for providers of post-acute care. In addition to the
work on new payment systems for rehabilitation facilities and
long-term hospitals discussed above, a PPS for skilled nursing
facilities (SNFs) was implemented in July 1998 and an interim
payment system for home health agencies was put in place in
October 1997 until a PPS can be developed. To guide the
development of consistent payment policies across post-acute
care settings, MedPAC recommends that common data elements be
collected to help identify and quantify the overlap of patients
treated and services provided. Further, it is important to put
in place quality monitoring systems in each setting to ensure
that adequate care is provided in the appropriate site. We also
support research and demonstrations to assess the potential of
alternative classification systems for use across settings to
make payments for like services more comparable.
The Commission has several recommendations intended to
improve the PPS for skilled nursing facilities. More work is
needed to refine the classification system used in the PPS for
skilled nursing facilities, particularly in its ability to
predict the costs of nontherapy ancillary services. Alternative
ways of grouping rehabilitation services provided in SNFs may
also be called for to reduce reliance on measurements of
rehabilitation time. A method for updating the relative weights
that determine how much facilities are paid for each type of
patient is crucial as the system and the types of services that
are provided change over time. In general, as better data
become available with the new system, distortions in the base
payment rates due to imperfections in the initial data and
measures used should be detected and corrected. To avoid future
problems, facilities must be accountable for accurately
assessing patients' needs and reporting the data used to
determine payment for each case. Finally, payments should be
adjusted for geographic differences in labor prices using wage
data from SNFs, rather than hospitals, to make them more
equitable among providers.
As systems for rehabilitation facilities and long-term
hospitals are developed, a number of crucial decisions must be
made. Among them is the unit of payment. MedPAC recommends that
a per-discharge mechanism be adopted for rehabilitation
services. A system currently exists that could serve as a basis
for such an approach, perhaps with some modifications. We also
recommend that, in choosing a patient classification
methodology for a long-term hospital PPS, HCFA consider not
only per diem but also existing and potential per-discharge
approaches.
The interim payment system for home health agencies that
was created in the BBA was the subject of a great deal of
controversy in the year following its enactment. This
controversy stemmed, in part, from the use of payment policy as
a vehicle for curbing the rapidly rising cost of a benefit that
was poorly defined. Although the debate appears to have
subsided at least temporarily with recent changes in the
system, MedPAC believes that more fundamental changes are
necessary even as a new payment system is being developed. We
urge the Congress, in consultation with the Secretary, to enact
clearer eligibility and coverage guidelines for Medicare home
health services. To understand better the content of home
health visits, agencies' bills should describe the specific
services provided. Moreover, we recommend that an independent
assessment of need be conducted for Medicare beneficiaries who
receive extensive home health care to ensure that care is
appropriately coordinated and suits the needs of the patient.
Finally, modest beneficiary cost-sharing should be introduced
for home health services; copayments should be subject to an
annual limit, and low-income beneficiaries should be exempt
from this requirement.
Modifying payment for services provided in ambulatory care
facilities
Spending for facility-based ambulatory care services has
grown substantially since the early 1980s, in part because a
combination of financial incentives and technological advances
encouraged shifting of services that once were provided
exclusively in the inpatient setting to hospital outpatient
departments (OPDs), ambulatory surgical centers (ASCs), and
physicians' offices. Medicare pays for many of these services
differently according to where they are provided. MedPAC offers
several recommendations on making payments more equitable
across settings and services.
The Commission makes several recommendations that apply to
payment for ambulatory care in general. Consistent with the way
that Medicare pays for physicians' services, the unit of
payment should be the individual service--that is, the primary
service and the ancillary supplies and services integral to
it--rather than a larger bundle of services. Accordingly, the
relative cost of the individual service should determine
payment, rather than costs for groups of services taken
together. In setting payment rates, the pattern of services and
costs across ambulatory settings should be taken into account.
Moreover, a single update mechanism, linking updates to
spending growth across all ambulatory care settings, should be
applied to the payment rates for each type of provider.
As required by the BBA, HCFA has proposed a new payment
system for hospital outpatient services and major modifications
to the payment system for ambulatory surgical centers. MedPAC
recommends these changes be closely monitored to ensure that
beneficiary access to appropriate care is not compromised in
the face of substantial reductions in payments to hospital
OPDs. In addition, payments should reflect the higher costs of
treating certain types of patients. In the absence of adequate
patient-level indicators, facility-level adjustments may be
required for the time being. We are also concerned that
loosening guidelines for determining whether a procedure is
eligible for coverage in an ASC may lead to inappropriate
changes in the pattern of service provision across ambulatory
settings.
Although the BBA provided for a gradual reduction in the
amount of beneficiary coinsurance for services provided in
hospital outpatient departments, it will be years before that
amount is reduced to a level comparable with that for similar
Medicare-covered services furnished in ASCs or physicians'
offices. MedPAC recommends accelerating the reduction in the
outpatient coinsurance, with increased program spending being
used to avoid further reductions in hospital payments.
Continuing reform of the Medicare Fee Schedule for physicians
The BBA mandated a number of changes in the Medicare Fee
Schedule for physicians. To update payment rates for
physicians' services, a sustainable growth rate system was
established to replace volume performance standards. To make
the fee schedule fully resource-based, HCFA recently began a
phase-in of a new resource-based methodology for the practice
expense component (which it intends to refine as it is used)
and is developing revisions to the professional liability
component.
MedPAC recommends several modifications to the sustainable
growth rate (SGR) system. These include revising the SGR to
account for changes in the composition of Medicare fee-for-
service enrollment, cost increases that reflect desirable
improvements in medical capabilities and technology, and
inaccuracies in the forecasts used in estimating the SGR each
year. We also call for technical changes that would make the
timing of SGR components more consistent, and the earlier
availability of estimated updates for each upcoming year.
With respect to practice expense payments, MedPAC agrees
that, for some services, it is appropriate to pay a lower
practice expense amount when physicians perform the service in
facility-based settings outside the office. MedPAC recommends,
however, that a service-by-service approach be used to decide
which services are subject to this site-of-service
differential, rather than applying the same decision to entire
groups of services. Payments for services generally recognized
as inappropriate to perform in a physician's office should also
be reduced by the site-of-service differential. In developing
further refinements to the practice expense component of the
fee schedule, participants with a wide variety of relevant
expertise should be included in the process.
To make the professional liability component of the fee
schedule resource-based, payments should reflect the risk of a
professional liability claim in providing each service.
The composite rate for outpatient dialysis services
MedPAC is required to recommend an appropriate update to
the composite rate for outpatient dialysis services each year.
The dialysis industry has been profitable and firms continue to
enter the market despite the lack of a significant update in
the composite rate since it was established in 1983. The
Commission's analysis indicates, however, that costs have been
approaching payments in recent years. We are concerned that
further increases in dialysis costs relative to the payment
rate may cause quality to deteriorate and, therefore, recommend
an update of 2.4 percent to 2.9 percent. We also urge that the
increasing emphasis on the quality of care received by dialysis
patients continue, and efforts to collect and evaluate
information on patient care and treatment patterns proceed.
CONCLUSION
In just over a decade, the first members of the so-called
baby-boom generation will become eligible for Medicare.
Policymakers have appropriately focused significant attention
on how to address Medicare's future fiscal pressures. But
Medicare also faces challenges in the short run as HCFA
continues to implement the BBA, as developments unfold in the
market for health care, and as new technologies and treatments
emerge.
These short run challenges are inevitable because Medicare
is an extraordinarily complex program. The program has 40
million beneficiaries, and it makes payments to hundreds of
thousands of providers who deliver tens of thousands of
different kinds of health care services and supplies.
Therefore, the program's payment policies must continue
evolving to ensure that Medicare's aged and disabled
beneficiaries have access to high quality, medically necessary
care across the country.
To assist the Congress and HCFA in meeting this objective,
MedPAC will continue to monitor Medicare beneficiaries' access
to health care and will examine what can be done to improve
quality not only in Medicare+Choice, but also in the
traditional fee-for-service program. The Commission will track
developments as the Medicare+Choice program matures, looking at
the availability of plans, the impact of risk adjustment, and
other payment policies. MedPAC will continue to analyze fee-
for-service payment policies in a broad context that takes into
account that health care services can increasingly be provided
in different settings. This work will look not only at what
constitutes an appropriate unit of payment, but how payments
are currently updated using quite different methods. Finally,
the Commission will continue to study the delivery of services
in the broader health care market to determine whether
strategies that have evolved in private markets can be used to
improve Medicare policy.
Chairman Thomas. Thank you, Doctor. I do want to say that I
want to ask you some questions in a general sense, in relation
to the larger Medicare question and the future of Medicare. I
do not want to detract from the initial questioning that the
Members may have focused on this particular report, so I will
save those for the second round.
In a general sense, one of the things that has been focused
on is what I guess we would call``flat growth,'' or relative
``no growth,'' in the Medicare payment structure. It is just a
couple of months old, but if you start extrapolating that out,
the world looks different. Do you have any general statement
you might want to make about this recent phenomenon? Do you
think it is going to continue? Do we have an explanation for
it? Was it really anticipated?
Ms. Wilensky. The answers, in summary and then I will
elaborate in a moment are, no, we did not anticipate that. No,
I do not think it is going to continue and I am not sure we
understand exactly what is going on.
Let me explain, a little bit, those statements.
Chairman Thomas. You will be pleased to know that you have
given me as much information as anybody else can on this. It is
interesting.
Ms. Wilensky. It is an issue that I have discussed to some
degree with Bob Reischauer and others who have poured over the
numbers, so it represents at least something about this issue.
Thank you.
We did not expect the drop that has been reported in the
cash receipts. However, we did see a somewhat similar
phenomenon in 1983-84 after the introduction of the DRGs, when
there was a sudden drop in the first year, then followed by a
little bit of catch-up and more spending than was in the
projected pattern. I believe that we are seeing something like
the ``deer in the headlights'' phenomenon going on right now: a
sudden response to a lot of changes that are affecting
hospitals, not only directly, but through home care and skilled
nursing facilities and rehabilitation facilities. It has
accentuated the response. I would be very surprised if the type
of the response, the level or magnitude of the decline we see,
continues and I would expect it to go back up to the 5- to 6-
percent increase that was in the projections.
Chairman Thomas. I have a hunch. Again, it is just a hunch.
Perhaps, not like 1983-84, we saw the phenomenon with HCFA
having to take a step back. Reassessed on the Y2K question,
this may, in fact, also be a phenomenon that is out there in
private sector with billing and the rest. It may simply be a
slow-down of the process, making sure that the information and
the data are correct and then going forward. Is that a
reasonable assumption, although no one has verified that?
Ms. Wilensky. I think that is a reasonable assumption. I
also believe that the current emphasis on fraud and abuse makes
institutions very reticent to send forward bills that they are
not convinced are accurate.
Chairman Thomas. Not bad up to a point. Let me, very
quickly, go through some questions that I have. I would prefer
shorter answers rather than longer. It focuses on the concerns
I have about discussions with the press. Notwithstanding the
embargo on the Commission's report until today, in which
statements were printed in the press, my reaction was that
there was a statement that I had some concern about. Then, in
turning to the report, I could not find specific verification
for the statement. So, I need some dots connected, if you will.
For example, on February 25, the press reported that you
said that hospital margins had taken ``a big hit in the last 6
months.'' And yet, in looking at the Commission's report, I
could not find any acknowledgement of potential hospital
financial problems. In fact, on page 59, the report says,
``Hospitals generally appear to be in good financial shape,
overall, with PPS margins likely to remain relatively high,''
and so on. Is this data that have arrived after the Commission
report was written? Is this anecdotal? Where does it come from?
Ms. Wilensky. No. It was a statement I never made. I will
explain the statement I did make, however. What I said was
that, in traveling around the country I had been hearing that
in the last 6 months hospitals are reporting problems and hits
on their margins that they had not felt before. I was impressed
with the fact that institutions that did not know each other,
were not related to each other, were making similar comments. I
very specifically indicated that it was only anecdotal. I had
no way of knowing if it was true, but I was impressed that I
was hearing it in different parts of the country.
Chairman Thomas. Good. In the report, on page 20, it states
that skilled nursing facilities have developed specialized
rehabilitation units to which they admit patients needing
intensive therapy. In the report it goes on to say, ``Often
these units have been developed because local hospitals do not
provide sufficient rehabilitation capacity.'' In reflecting on
that phrase, my immediate reaction was that we are moving from
the old cost-based reimbursement structure to a prospective
system. In the old days, any of the therapy and ancillary
services were paid whatever the costs were. It would seem to me
that an enterprising skilled nursing facility could see this as
a potential money-maker. You could also argue that they were
developed because local hospitals did not provide a sufficient
rehabilitation capacity. How were you able to discern that it
was not an activity that could be an income producer for a SNF,
rather than the failure to have sufficient rehabilitation
capacity?
Ms. Wilensky. We can provide you additional information. My
interpretation of the statement was more of a statement of
fact. In some hospitals there were not specific rehabilitation
units that were present. In those areas, that led to the
development of specific rehabilitation hospitals.
Chairman Thomas. That could be a statement of fact in
particular instances. But then, did that support a generality,
in terms of a reference to the fact that that was the reason
they produced these?
Ms. Wilensky. I will find out. I do not recall.
[The following was subsequently received:]
In its March 1999 Report to the Congress, the Commission
notes both of the above as factors likely associated with
growth in SNF payments. Pointing to the availability of
inpatient rehabilitation facilities, page 20 of the Report
notes that some skilled nursing facilities ``have developed
specialized rehabilitation units to which they admit patients.
Often, these units have been developed because local hospitals
do not provide sufficient rehabilitation capacity.'' Also
noting the cost-based ancillary payment structure for skilled
nursing facilities, page 82 of the Report notes that
``differences between SNF and rehabilitation facility services
diminished partly because until last year, Medicare reimbursed
SNFs their full costs of furnishing rehabilitation services.''
The Commission believes that both factors likely
contributed to the growth in SNF ancillary payments and
specialized payments, although the Report does not posit that
one factor is more predictive than the other regarding the
presence of a rehabilitation unit or therapy-ancillary spending
in SNFs.
Chairman Thomas. Good. It is significant if you could
analyze that that was actually the reason they did it, rather
than the other. You mentioned, in your initial statements, the
home health care cost sharing concept. You said, ``We have
talked about it.'' On page 95, which describes that general
area, there was no $5 copayment mentioned, or a $300 out-of-
pocket limit mentioned. Who is the ``we'' and where have you
talked about it?
Ms. Wilensky. We can provide you, if you would like, the
transcript from the Commission's meeting. These numbers were
specifically discussed in our public Commission meeting to give
some indication about what we meant when we talked about
``modest stop loss,'' and we specifically used the numbers of
about $5 a visit, for about 60 visits that they would be
subjected to. That meant a stop loss of about $300, exempting
low-income people, and at that point, moving to an independent
assessment. So, those were the numbers that were specifically
used in our public hearing.
Chairman Thomas. What was the rationale for not including
them in the report as an example of what you meant by the
general statement, ``Congress should require modest cost
sharing for home health services''?
Ms. Wilensky. I do not recall, this year, that we actually
discussed that point. Last year, we had not included the
specific number, because we had not spent enough time. We felt
deciding whether $5, $4, $7 was a right amount. But there
actually would have been, I believe, no objection to using the
four examples in the text. We just did not. As I said, if you
would like, we would be glad to provide you with a transcript
that indicates the discussion of those specific dollar amounts.
Chairman Thomas. My concern is that when I read something
in the paper and I turn to the document to find verification
for it; it is not in there. As you indicated, you may not have
been accurately quoted in the press, and I have already
received letters signed by Members based upon those press
reports. They had the weekend to write the letter, because the
information was presented, notwithstanding the embargo of the
report until Monday.
Last question, for now, also involves a specific date. If
this was discussed in the Commission, I would very much like
knowing that. Our concern, of course, in the adjustments for
the Medicare+Choice sector is some of the timing is simply not
workable. The one that is being focused on, most recently, is
the May 1 reporting date, which we believe, having pursued it
with attorneys both in the executive branch and here, that we
are probably going to have to change it by statute. It can't be
done administratively.
I noted that in the report, it was recommended moving it to
later in the year. I believe the press has reported that you,
or the Commission, has said July 1, but I do not know where
July 1 came from because I do not believe it is in the report,
is it?
Ms. Wilensky. I believe, again, that our discussion was
either July or August, depending on what HCFA thought it could
live with.
Chairman Thomas. OK. The basic operating statement should
be, I think, isn't it, ``as late as we can get it''?
Ms. Wilensky. Right. Exactly.
Chairman Thomas. Because the only criterion would be
getting the material out for the educational purposes. So
rather than some arbitrary fixed date, if it is too early, let
us get it as late as we possibly can to make sure that people
have the maximum amount of time to come with a decision
commensurate with HCFA's ability to get the information out.
Ms. Wilensky. That was one of the reasons we did not want
to specify, exactly, which later date we meant, because we did
not know that.
Chairman Thomas. The statement in the Commission report,
later in the year, does not necessarily specify July 1,
although that date has been used.
Ms. Wilensky. It does not, although that has been used. In
fact, usually what I have said is July or August to try to get
into that second quarter.
Chairman Thomas. Good. Thank you. As I said, I will have
some additional questions, but I wanted to make sure the rest
of the Members have time to respond. Gentleman from California.
Mr. Stark. Thank you, Mr. Chairman. Gail, I have got a
whole host of questions. Just let me pick out a couple here, at
random. The risk adjustment issue is being debated. The
managed-care folks are saying that it should be revenue neutral
just among the people they have signed up. I would contend that
it should be revenue neutral across the whole Medicare
population. What we are concerned about is the fact that they
are getting paid too much for cherry picking. So, if you only
take the cherries they picked and assumed they were all
healthy, there is nothing to adjust. Is it not the idea that we
should risk adjust within the entire Medicare population?
Ms. Wilensky. I believe that we should risk adjust within
and between.
Mr. Stark. Thank you. I have a concern regarding DSH
payments and you made some recommendations about what we should
do about changing the DSH payments. You did not give us some of
the detail that is required. There are about 1500 major
hospitals that get all of the DSH payments, out of 6000. We
have always used DSH as a proxy. We never have, in the past,
gone through and evaluated whether a hospital really did, in
fact, deliver the services for which we were then giving extra
money, because of their higher cost. Have you considered
whether we could somehow do so on a hospital-specific basis? I
know we have never been able to define ``charity care,'' but
maybe the time has come. I know in my county they have lumped
the children's health care, the indigent care and the Medicaid
all into one package. They have got their own county managed
care operation. In Tennessee, by definition, every hospital is
a DSH hospital, because they all have to share. Now is there a
possibility that we just have to redesign that?
Ms. Wilensky. I think we definitely have to redesign it.
What we have tried to suggest in the approach that we have
recommended, is that because of the changes, like in TennCare
and other places, we need to have a broader definition of what
we are talking about. It needs to include indigent care in
addition to Medicaid and any local indigent care programs. Our
concern has been that while DSH should be focused on a
relatively small proportion, or at least not all of the
hospitals, that the barriers and the distributions are unfair
between urban and rural. The distribution is too focused to
urban hospitals in the sense of the amount.
Mr. Stark. That is easy, because the rural hospitals do not
amount to much money.
Ms. Wilensky. Right. It is easy to fix in terms of the
dollars. It is just unfair. Yes, we ought to redefine how we
are doing it and we ought to include all indigent care that is
provided. That would make a much fairer program.
Mr. Stark. Are you going to do something about it? We ought
to do it.
Ms. Wilensky. We had recommendations from last year and
some discussion. We would certainly be very pleased to work
with the Subcommittee to try to operationalize what we have.
Mr. Stark. I was hoping you were going to do it.
Ms. Wilensky. Well, we have some work done on it. We have
some distributions that result from the recommendations that we
made. We feel like what we did last year did not quite hit,
exactly, what we intended. It is definitely in the right
direction and better than what we have now.
Mr. Stark. I have always felt, and I think you have touched
on this before, that we should pay for a procedure at the
lowest price that the procedure is available. In other words,
if a physician could do a procedure in his office or her
office, we should not pay him the hospital-based rate for that
procedure. Even if they do it in the hospital, they should
receive the lowest rate that is in the market. Is that a fair
assessment?
Ms. Wilensky. It is subject to making sure that the patient
characteristics are really comparable. One of the problems that
we are concerned about is that the person who has a procedure
in the hospital may not be the person who has it in the
doctor's office. Jack Rowe, our geriatrician, reminds us that
when somebody comes in his hospital, they frequently have three
or four different morbidities. They may have some senility or
dementia. Having any procedure done becomes far more expensive.
So, either we have to have good patient characteristics or make
some allowance for that. Notwithstanding that, yes, we agree.
Mr. Stark. Finally, oncologists are saying that the reason
they have got to charge a whole lot for the drugs they sell,
which we pay for, is that we are not giving them enough in
their practice expense payment. I do not think that quite
washes. It is my understanding that under the Physician
Reimbursement Plan, which you wrote, we pay physicians for
their services, not the products that they sell and the mark-up
of those products. Now, there is nothing illegal about a
physician, in most states, being in the pharmacy business. They
can buy the drugs wholesale and sell them. But, ought we to put
some limit on that? Ought we to say, ``No more than what the VA
pays?'' I think it is becoming a very expensive issue. It
probably could lend itself to some overutilization where there
is a tremendous mark-up in these drug prices. Are you prepared
to bring us any recommendations?
Ms. Wilensky. This is not an issue that the Commission has
formally taken up. I believe, last year, we responded to you
that we think that reimbursement ought be what is justified for
the drug, per se, and should not be used as a justification to
cross-subsidize the physician. If the oncologist believes there
is something wrong with their payment, then they need to make
that argument directly to HCFA during the review period.
Mr. Stark. What about limiting what we pay for the drugs?
Ms. Wilensky. You should. You have to decide what that
limit is; whether it is the supply price of the AWP minus 5, or
whatever. Yes, there ought to be some decision as to how to
reimburse.
Mr. Stark. Thank you. Thank you, Mr. Chairman.
Chairman Thomas. Thank you. Gentlewoman from Connecticut,
do you wish to inquire?
Mrs. Johnson of Connecticut. Thank you, Mr. Chairman. Just
to follow-up on the preceding question: one of the problems has
been that the RBRVS, resource-based relative value scale, did
not take into account the cost of delivering oncology drugs.
So, we put that into the medication costs. We want to be sure
that in looking at what we are going to reimburse for drugs, we
do not to compare them to what we pay the VA for those same
drugs. Wouldn't you agree?
Ms. Wilensky. I was not suggesting the VA supply price as
the price that I would use.
Mrs. Johnson of Connecticut. I appreciate the good work of
the Commission. I am terribly disappointed in your
recommendations, because I think that your data are too old for
the urgency of the problems we face. I do not see
recommendations that go to the heart of what I am seeing out
there. I see institutions at peril of going under. They are at
peril because of some of the irrational aspects of our payment
system. The fact that medically complex patients are not
properly reimbursed under the skilled nursing facilities' PPS
is sufficiently recognized by HCFA that they have contracted
for a study. But the study will not report until 2001. I can
tell you that in the small nursing homes out there, our failure
to reimburse correctly for the medically complex patients is
now a very serious issue.
It has become extremely burdensome and problematical,
because we are now requiring those nursing homes to pay for
ambulance rides, which they never used to have to pay for
before, and prosthetic devices. So, has the Commission given
any thought to restructuring the payment system for nursing
homes to exclude things, like ambulance charges, over which
they have very little control? The two are related. If they
have high costs for the medically complex patient and that
patient has to go a hospital in my district, the ride is $700.
The reimbursement rate is $200. You are automatically out 3\1/
2\ days' worth of reimbursement rate if you have to take a
patient to a hospital. I would like your comments on whether
the Commission believes that HCFA should be making some interim
effort to address the medically complex reimbursement rate.
Also, would you be able to work with me on evaluating the
possibility of excluding ambulance charges from the PPS?
Ms. Wilensky. With regard to the first issue, the medically
complex patient, the Commission agrees with you. One of the
areas where we thought there is a problem with the existing
classification system is the high-acuity patient. I think the
question is going to be whether there is additional money put
into the system to provide better for the high-acuity patients,
or whether it is going to be a fight over redistributing the
existing dollars. That is obviously something that Congress
will have to determine: whether or not there are additional
moneys, as were put up last year for home care, to try to ease
this problem. We do think there is a problem with the high-
acuity patients. We don't have a response to hurrying up HCFA's
study in order to try to redesign that. We believe HCFA also
recognizes the high-acuity patient problem.
The issue with regard to ambulances is different. We have
not, to the best of my knowledge, specifically looked at that
issue. In general, the Congress was concerned about the cost
pass-through of ancillary services. In general, I don't know if
in the deliberations of the nursing home PPS requirement any
thought was given as to whether ambulance costs, per se,
particularly if not owned--if the ambulance company had no
financial relationship to the nursing home--whether there was
ever any consideration given to having that be outside the PPS.
I agree with you. It seems to be somewhat different in nature
than, say, IV or ventilator or other services that are in the
ancillary service. So, it may be possible to construct a
payment that would differentiate between ambulance services
that have financial relationships and those that do not. I do
not know what it would cost and I do not know whether that was
considered when the BBA was passed.
Mrs. Johnson of Connecticut. Well, my understanding was
that it was not. In modeling the PPS for nursing homes on the
hospital thing, the only thing that was excluded was the
hospital. I do think there is a real urgency about looking at
that kind of cost because it is completely out of their
control. It is very large compared to their reimbursement
rates. You get a run of difficult patients and you will no
longer be financially sound. I do not believe we can wait 2
years to address this. I will be hoping that the Commission can
work with me on that.
My light has gone on, so I will come back to my other
questions on a successive round. Thank you.
Chairman Thomas. Does the gentleman from Louisiana wish to
inquire?
Mr. McCrery. Thank you, Mr. Chairman. Ms. Wilensky, I want
you to expound for just a minute on your remarks regarding
specialty hospitals, rehabilitation hospitals, long-term care
hospitals and a prospective payment system that might be
devised for those hospitals. You indicated, I think, in your
testimony that your Commission was opposed to simply extending
the payment system devised by HCFA for SNFs to rehabilitation
and long-term care hospitals. Is that correct? If so, would you
explain a little bit more why that system is not suitable for
those specialty hospitals?
Ms. Wilensky. This is an area in which I have not
personally done research, but I will report, as accurately as I
can, the sense of the Commissioners in this area. Ideally, we
would prefer if we could have a single medical classification
system that would cover skilled nursing facilities and
rehabilitation hospitals. Unfortunately, the researchers who
have done work in this area have concluded that there isn't a
system that explains the variations in both of these areas, and
that one medical classification system, the so-called RUG, or
resource utilization group, seems to do a pretty good job in
skilled nursing facilities, but there is a different system
that has an acronym called FIM-FRG. It has a rather long
functional measurement component to it. It describes the better
medical classification system for rehabilitation hospitals.
And, therefore, our position has been that, while we would
prefer if a single classification existed, it doesn't. And,
therefore, our recommendation is we should go with what
describes skilled nursing facilities for skilled nursing
facilities and use the system, the per-discharge system, that
is more appropriate for the rehabilitation hospital for those
services.
In order to try to keep that same sense of paying for the
service, irrespective of where it is provided, we have
suggested that HCFA try a demonstration where, when a
rehabilitation service is provided in a skilled nursing
facility--which sometimes it is--that that reimbursement for
the rehabilitation service be made as though it were being
provided in a rehabilitation facility. So you would have the
same payment even though the site of care differed. That is how
strongly we think that the resource utilization group
classification system doesn't seem to fit the rehabilitation
world.
So, if we could, we would rather have one system. But we
have recognized the reality that one system just doesn't seem
to work and, therefore, we recommend two different systems and
to get consistency where you can by focusing on the service
itself, not the site.
Mr. McCrery. In fact, it seems to me that, if we went to
the per-diem basis for rehabilitations, that there would be a
reverse incentive there for them to game the system and just
keep the patient as long as possible to get the maximum
reimbursement, which has a number of adverse consequences.
Ms. Wilensky. Yes.
Mr. McCrery. Is that your fear also?
Ms. Wilensky. That is true. I was surprised. I happened to
speak to a few heads of rehabilitation hospitals. I assumed
they would prefer the per diem because it would put more
demands on them to go to a per-case. They actually indicated
they think they can do a better job getting the right
rehabilitation to the patient as they need it without all the
artificial constraints that is in a per diem. So we think,
intellectually, it makes more sense and I was pleasantly
surprised that the people who actually run them think it makes
more sense.
Mr. McCrery. Thank you.
Chairman Thomas. I thank the gentleman. Does the
gentlewoman from Florida wish to inquire?
Mrs. Thurman. I thank you, Mr. Chairman. I have got a
couple of questions and I am going to preface with this.
Yesterday I was at a Rotary Club in Crystal River and I had a
gentleman who said to me: I have lived in a lot of places in
this country and I feel like I am a second-class citizen here
in Citrus County because I can't get HMOs Medicare. It was
really kind of a sad state of how he was feeling about himself.
So my issues are really going to be based on some of the
reimbursement issues, particularly to rural areas and I know
you have got some stuff on the blended formula in here. But let
me ask you, do you believe that the fiscal year 2000
reimbursement rates will have any kind of an effect on this
issue?
Ms. Wilensky. I think there is so much turmoil going on now
that if it has any effect, it will be very modest. There will
be some kicking in of the blended rate, which will help rural
counties a year sooner than we initially thought. And the so-
called floor counties, the counties that had been paid less
than $367 per person, per senior, per month are already being
helped.
But I would be surprised if there is a big change right
away. There are enough issues outstanding for the HMOs about
the service delivery requirements across counties in a single
service area, about the timing, about when they have to have
their premium benefit combinations into HCFA, about how much
information they have to provide HCFA, and how much that will
cost that I suspect a number of groups that might be at the
edge of coming in might well wait a year before they come in.
So I don't know that we will have a fair chance to see how much
effect the increased reimbursement in rural areas is going to
provide in this next year, although I would be very pleased if
I was wrong.
Mrs. Thurman. Well, what would you recommend? I mean, I
have to tell you, the letters that are going out for those
people that are losing their coverage. I mean, basically what
the letter is saying is Congress did it because of the
reimbursement issues. I mean, what would you suggest we do? I
mean, these are very important issues to these folks because
they can't make up the benefit of pharmaceutical issues. I
mean, I need some help.
Ms. Wilensky. I think in this case, HCFA did it, honestly.
Because last fall, they could have provided a little more
flexibility, acting more like insurance commissioners when the
plans approached them in August and September and said, we
missed the mark. They could have allowed them to come in,
beaten them up, given them 10 or 15 percent of the difference
they were asking for, and maybe kept some of those HMOs in the
counties for another year.
I think the issues that Congress needs to push HCFA to work
on are some of the flexibility issues. The date, although this
is going to be a statutory question. This issue of can they go
until July or August before they have to get the premium
benefit combination in. That is a big question about how much
uncertainty you are going to face in the coming year.
The issue about the service package difference. Up until
this last year, HCFA allowed an HMO to have a different benefit
package across different counties in a service area if HCFA
paid those counties different amounts, basically reflecting, in
fact, different spending patterns. That has now changed and
that is going to cause some people, some plans that have rural
counties in bigger service areas, to be concerned about whether
they can differentiate it. And if they can't, to give them one
more reason not to go in.
So I think right now, it is to push HCFA to find ways to
lighten the burden since I don't think it is so likely that you
are going to increase directly the payment rates. But if you
can decrease some of the extra costs that have been put on the
plans, that might be just as well to try to get them to come
in.
Mrs. Thurman. Do you think that the 5-year rule issue has
had any effect on this as well, where people may have pulled
out this year?
Ms. Wilensky. Yes, I do. I mean, it was raising the ante to
pulling out and it meant that some plans that might have stuck
around for another year wanted to get out before they got swept
up into that.
Mrs. Thurman. Mr. Chairman, I hope we are doing another
round, because I have a whole bunch of other questions. But
thank you.
Chairman Thomas. Well, the Chairman certainly is going to
do it and if you want to stick around for it, you can. I just
want to, prior to recognizing the gentleman from Texas for his
questioning, indicate that I took a look at Citrus County. It
is $488 on the new blend rate. The gentleman from Minnesota,
who has extensive managed care at very tight dollars, for
example, hunt up and Minnesota's $457 rim--see, Minnesota's
$470 dollars--I have a county in California, Fresno County,
which is $438 and they are able to bring in managed care. But
it is oftentimes in context with roughly where they are
geographically, since California's a high-penetration State and
Fresno is only two counties over from the Bay area.
And all of the points that the Chairman made about the
decisions that now have to be made to make it work are exactly
why--and my questions are going to go to the larger question of
the future of Medicare--but the Medicare Commission is looking
at a premium support model, which would negate the need to try
to make all of those decisions administratively and incorporate
it into the plans making those decisions in the price that they
offer to the new board.
For example, you are very familiar with the politics of
producing this blend structure. It slows the growth up top,
whether they need it or not they get 2 percent, it speeds up
the bottom. But the critical point is those middle dollars that
make the difference between attracting a plan or not. And that
area is going to grow slower than it probably needs to because
it doesn't get 13 percent at the bottom, but it doesn't get the
7 percent that it needs, it gets the 3.2 percent. And that I
don't know that we can wait the time for that change to occur.
Ms. Wilensky. And, Mr. Chairman, I would have to say too,
though, I think because we have such a large veterans
population which is not included in some of these issues, have
something to do with it. Getting doctors to participate because
there is a smaller number of doctors in these areas that we are
talking about, the surrounding areas are anywhere between a
population of 100,000. So we just don't have the population
figures and we have doctors that will just lock us out.
Chairman Thomas. And the gentleman from Washington has that
problem with bases as well. And those are now irrelevant to
HCFA's pricing of the product, but certainly not irrelevant to
the health care delivery structure in the area. That, in part,
would be incorporated under a premium support model as the
prices are determined relatively automatically and that is one
of the primary attractions and the reason we have come so close
to the statutory 11 votes to present that to the Congress. But
I am going to have some questions about that later. The
gentleman from Texas.
Mr. Johnson of Texas. Thank you, Mr. Chairman. Well, I
would like to continue with that a little bit. You know, I know
you are recommending that Medicare choice have the flexibility
to tailor their benefit packages with their service areas and
we seem to think that flexibility is needed because of the way
that formulas do vary by county. And I wonder if you would
comment some more on that.
In particular, Waco down in Texas is a low area, by county.
And they have all left there. There is nothing left there
except fee-for-service. And, you know, how do we entice these
people back into the system? And, I grant it, Waco is fairly
close to some high-level metropolitan areas where people could
go, I suppose. But, still, it is not there for them when they
need it. Can you comment?
And let me ask one more follow-up on that while you are
talking. Are we trying to develop another system of figuring
out how to make the payments, over and above what we already
have established? Or are we refining it? Or are we initiating a
new system? What is your recommendation?
Ms. Wilensky. What we are trying to help the Congress with
now is to refine the existing system that was put in place with
the Balanced Budget Act. The commission that Chairman Thomas
referenced, a bipartisan commission, is looking at the much
bigger picture of what Medicare in the future might look like.
But, of course, there are times in which these two start to
have some overlap because some of the decisions that you get
asked to look at from the Medicare+Choice provisions in the
Balanced Budget Act raise the same kind of questions that a
long-term Medicare commission would look at.
This issue about the difference in payment across
geographic areas has been looked at a little in the Balanced
Budget Act. But I believe that as many problems have been
created as have been solved. What the Congress correctly noted
is that there was a big spread in payments across counties
under risk contracts, from a low of $225 or $230 in Nebraska to
a high of $780. And they put a floor on to make sure the very
lowest counties didn't go below $367. And they financed it by
having very slow growth in the high counties, 2-percent growth
in the high counties, where many of the HMOs were in the higher
paid counties.
But the problem is that spending under traditional Medicare
in those higher paid counties is going to continue at whatever
rate and that--I think Chairman Thomas referenced this fact--
that 2-percent growth, the minimum growth rate--is a very
small, very low growth rate. Especially when other Medicare
spending in the same area is going to grow at a faster rate.
It raises the question that the Congress hasn't taken on
yet, but will have to at some point, which is how much
variation should occur across the country in terms of what
Medicare pays. Sometimes the variation occurs because people
have differing health status or they are more likely to die in
a year. But a lot of the difference occurs because of the way
medicine is practiced in different parts of the country; much
more aggressively in some parts, much more conservatively in
other parts. And whether the Federal Government ought to pay
for that is an issue that the Congress hasn't dealt with.
I think the variations that exist now are still too great,
even though they are less than they used to be. And I think the
different payments in the same geographic area that was
introduced in the Balanced Budget Act is asking for trouble and
sooner, rather than later, that Congress is going to have to do
something about that problem.
Mr. Johnson of Texas. Yes, but what are we going to do? Did
you make a recommendation about that?
Ms. Wilensky. We have not made a recommendation because it
really goes to the big issue of what you want to do about
Medicare for the 21st century.
Mr. Johnson of Texas. I hear you. So you are waiting for
the commission.
Ms. Wilensky. And then we will gladly try to help you with
the policy questions that fall from that.
Mr. Johnson of Texas. OK. Thank you very much. Thank you,
Mr. Chairman.
Chairman Thomas. I thank the gentleman. The gentleman from
Michigan to inquire.
Mr. Camp. Thank you, Mr. Chairman. We have had some
discussion over the profitability of hospitals and I know that
your report seems to use national data. And I just want to say
that--and it is anecdotal as well--but the information I get
from the hospitals in mid and northern Michigan are that their
margins aren't as rosy a picture as maybe the national pictures
might suggest they should be. And I just wondered if MedPAC has
any data that show any significant difference in the operating
margins of rural versus urban hospitals?
Ms. Wilensky. We can, Mr. Camp, get you information that
will show you the margins for both Medicare and total hospital
expenses for rural as well as urban and other classifications.
[The following was subsequently received:]
[GRAPHIC] [TIFF OMITTED] T8251.001
Ms. Wilensky. As it happens in MedPAC, we have a
representative from the hospitals in Michigan.
Mr. Camp. Yes. Right.
Ms. Wilensky. So I think that we have tried to be cognizant
of the fact that there is a distribution in terms of margins.
We have pointed out in the chart books that we have put out
that even in 1996, which in general was a very positive year
for hospitals, there were some 23 or 22 percent of hospitals
that were reporting negative margins and that, while it is
lower than it had been in previous year, it was still almost
one in four that had this difficulty. So we do try to look at
the issue.
And we also are extremely concerned about the fact that our
latest information goes through the summer of 1997, in response
to both your comment and Mrs. Johnson's comment. We keep trying
to find ways--I have had discussions with various groups about
whether there might be ways to get more timely data. It is why
we have recommended no further reductions in payment, because
we know we can't see what is going on now. But it is hard for
us to make a positive recommendation, because we also don't
know what is going on and only have anecdotal data. So we are
concerned about what we can't see right now.
Mr. Camp. Well, I appreciate that answer. I have another
question about Medicare choice. You know, it is difficult in
rural areas and I think there is a struggle to try to increase
the health choices for seniors there. And I wondered if the
recommendation for updating the government's plan so that the
treatment of sicker or healthier patients will be taken into
account. Do you, in your opinion or experience, do you believe
that that risk adjustor will result in lower or higher
reimbursement levels in rural areas?
Ms. Wilensky. I have not seen the distribution so I
honestly don't know what it will do in rural areas. What risk
adjustors attempt to do is to get the relative price right. If
there are reasons to believe that the absolute price might be
too low because of changes that have gone on in the Balanced
Budget Act to the base price, that is a legitimate question to
ask. It is legitimate to ask, after you have introduced risk
adjustment, whether 95 percent still is justified as opposed to
100 percent, since, in some ways, that was a crude way to try
to approximate some selection.
But what risk adjustment attempts to do--and I think HCFA
has done as good a job as they could have, given the data and
the time constraints placed on them--is to try to get the
relative prices between different HMOs and between the risk
contracts and traditional Medicare right. And they ought to do
it, because it is the correct way to make adjustments.
Mr. Camp. Sure. Just, quickly, you recommend or the report
recommends a copay with an annual cap on home health services.
Ms. Wilensky. Right.
Mr. Camp. And you mentioned a $300 cap. But that low-income
individuals would be exempt from this copayment.
Ms. Wilensky. Exactly.
Mr. Camp. At what level would you define low income?
Ms. Wilensky. We thought, for administrative ease, anybody
who has Medicaid, QMB, or SLMB, that is, anybody who is already
under some kind of a Federal program so we wouldn't have to
income test someone for this provision.
Mr. Camp. All right. Thank you. Thank you, Mr. Chairman.
Chairman Thomas. I thank the gentleman. The gentleman from
Washington wishes to inquire.
Mr. McDermott. Thank you, Mr. Chairman. Interesting report
and I read a lot of chapter two. Karen Ignani says that what is
happening this year is simply a tip of the iceberg. What is
your anticipation for July 1, when we get the bids for next
year?
Ms. Wilensky. I am worried. I am worried that there may be
additional withdrawals, partly because there is so much
uncertainty.
Mr. McDermott. So much uncertainty?
Ms. Wilensky. Uncertainty in terms of how the regulatory
structure will play itself out, with regard to risk adjustment
when some of the full encounter information will be available,
the requirements in terms of information reporting, the timing
issue. So I am concerned that, in some areas, we will see
further withdrawals.
However, the plans are in there to provide services to
seniors and seniors use a lot of health care services. And
there have been a number of plans that say they are interested
in stepping up to the plate. So I believe it would be helpful
if HCFA tried to come up with ways to lower some of the
regulatory burdens in appropriate ways, so that you are not
risking bad outcomes or not collecting appropriate information.
Because I think there are some administrative procedures HCFA
puts in place that worsen the problem.
Mr. McDermott. Specifically?
Ms. Wilensky. Well, as I indicated, I thought last year not
allowing for some renegotiation later in the year pushed out
plans that might not have left. Not making any allowance for
the fact that plans were asked to come in in May where, up
until then, they had had until November to come in.
The second issue has to do with this service flexibility.
Up until this year, HCFA has allowed for a different benefit
package. If HCFA pays counties different rates within their
general service area and has now come out with a rule that will
prohibit any such variation, even though it is making different
payments in some of these different counties.
Mr. McDermott. Does that mean they will go up to the
highest payment in the service area?
Ms. Wilensky. They can only do one. And anyway they do it,
they will have to give any difference in payments, between
payments and benefit, as extra payments. Probably if there is a
lot of variation they will leave.
Mr. McDermott. Do you think the 5-year lock out provision
that comes into effect this year will make a difference in what
people decide to do in July?
Ms. Wilensky. I think if they are not in and they have any
question, they may wait a year or two.
Mr. McDermott. Rather than get in and then have to get out
and be under a 5-year lock out.
Ms. Wilensky. And be out for 5 years. Right.
Mr. McDermott. OK, let me move to one other issue, because
I----
Ms. Wilensky. And another one is, on the other hand, for
the people who are in, this isn't quite the atom bomb strategy,
but it is raising the stakes high.
Mr. McDermott. Yes. I kind of wonder if it is going to
survive this session of Congress, frankly.
Ms. Wilensky. I think it might be appropriate to think
whether a similar but somewhat lower bar wouldn't do, wouldn't
have some of the same effect without having it be quite as
harsh. But, I mean, I understand why you wanted to do that and
the idea seems a reasonable one.
Mr. McDermott. Let me just move to another issue--
geographic disparity--because I come from the area where we
believe that no good deed goes unpunished. Minnesota,
Washington, Oregon--our AAPCC, everything is lower than the
national average, but the particular issue I want to raise is
home health care. Our average visits are 34 per year. Louisiana
is 170. Now, whatever you want to say about people in
Louisiana, I don't think they are sicker than people in
Washington State. There is something different about the way
the plan is being run. And it seems to me that you have to
evaluate acute and chronic cases separately.
We took the provisions of last year's Medipac report and
put a piece of legislation in--it was H.R. 746--in order to try
and set up a mechanism by which you could case-by-case evaluate
the long-term cases. Where are you on the commission, in terms
of this whole issue of how we sort out what we do in home
health care? Because Washington State is getting punished with
a 10-percent penalty when we are so far below the national
average that it is not fair. And I think something has got to
be done about it. So I am interested in how we work this out.
Ms. Wilensky. I am concerned about the variation in
Medicare payments across the country. I think that it is not
fair to the conservatively practicing States.
What we have suggested--because we agree, there do seem to
be two different populations in home care--is that after about
60 visits, there ought to be an independent assessment about
the care needs of the individual with regard to future home
care. So that you both try to tackle the cases where there may
be inappropriate care--because we did not want to have any
additional copayments beyond 60 visits--so that you both have
appropriate care for those who, in fact, have more chronic care
needs, as provided for under Medicare coverage, but you don't
prolong what will then be home care with zero copayment because
of how care tends to be delivered in a particular place. We
think this idea of having a geriatrically trained individual do
an independent case assessment around 60 visits--although we
are not stuck on that--but that seemed to pick up the two
distributions that we were observing, would help try to deal
with this, both for the appropriate and inappropriate users.
Mr. McDermott. Do you think the $5 copay that you have
suggested is fair? Is that going to get the desired result or
does that fall more heavily on the low-income people?
Ms. Wilensky. Well, what we have suggested is that we
exempt anybody who qualifies for any of the Federal
designations. So Medicaid, QMB, SLMB, those people not be
subject to the $5 copayment off the top. The second provision
is, we want to put a stop-loss provision so that, at some
relatively low level--although it obviously depends on who you
are--but something like $300, there are no further payments.
We use that $5 a visit, $300, as a ceiling to say around
the 60th visit where we are no longer going to use copayments,
we ought to have an independent assessment of the health care
needs of the individual, both to make sure the people who
needed it continue to get care at zero copayment and that the
people who are either pressuring physicians unreasonably to
sign-off on home care or for whatever reason were having long
streams of home care thereafter would have an independent
assessment of that need. So it was a way to try to deal with
both issues.
Mr. McDermott. I would like you to take a look at our
legislation and give us your comments. Because we tried to set
up a mechanism by which that could be evaluated and I
appreciate your looking at it. Thank you.
Chairman Thomas. I thank the gentleman. Does the gentleman
from Pennsylvania wish to inquire?
Mr. English. Yes. Thank you, Mr. Chairman. Dr. Wilensky,
this may be faintly redundant, but in your testimony, you
stated with regard to the hospital industry, that quote,
``Reducing payment rates below the level prescribed in the BBA
would not be prudent, at least for this year.'' I wonder if you
could amplify on this statement and, specifically, give me your
thoughts on the administration's budget proposals that would
reduce payments to hospitals this year.
Ms. Wilensky. Our concern, as several of the Members have
raised, is that our data are not as timely as we would like.
The last good data we have are from the summer of 1997, just
prior to the implementation or the enactment of the Balanced
Budget Act. While at that time it looked like hospital margins
in general were strong, even so there were about 22 or 23
percent of hospitals with negative margins. In general,
hospital margins were strong, but we have just gone through a
very active period of change. We cannot see the effects of that
change. We have cut out the maneuverability of many hospitals
because change is occurring in the outpatient area, home care,
skilled nursing facilities, as well as the reduced payments to
hospitals. We, therefore, think it is unwise to have further
reductions when we know we can't see what is going.
Furthermore, as I indicated in my comments to the Chairman,
I am impressed that, going around the country, I am hearing
hospital administrators say they feel something very different
has been happening in the last 6 months. They are not even sure
themselves, but they are having enormous pressure on their
margins and that the squeeze is much greater than they are used
to. I understand and they understand that this is anecdotal
information, but given that we know how out-of-date our data
are, that supports the notion of not doing further reductions.
Mr. English. I am getting the same anecdotal information
so, for what that is worth, I think you are on to something.
Let me, maybe, narrow my inquiry a little bit. Bad debt
payments to hospitals, obviously, are designed to compensate
hospitals for the cost of treating indigent patients who can't
afford to pay their bills. We are going into a period where
there may be a fair amount of pressure in some areas,
particularly with the new implementation of welfare reform. And
I wonder, can you give us any greater detail with regard to the
effect the administration's proposed 10-percent reduction on
bad debt payments might have to hospitals?
Ms. Wilensky. I don't have at my fingertips any analysis. I
will see whether there is any information that MedPAC has
available.
[The following was subsequently received:]
First, we need to clarify that Medicare's bad debt payments
to hospitals cover only the bad debts of Medicare patients in
the fee-for-service sector. These bad debts result from
hospitals' inability to collect (after reasonable collection
effort) the deductible and copayment amounts beneficiaries owe.
Medicare does not pay for any of the bad debts that hospitals
incur in treating non-Medicare patients, although MedPAC has
recommended that Medicare' disproportionate share adjustment be
modified to reflect the uncompensated care (sum of charity care
and bad debts) that hospitals provide to all patients.\1\
---------------------------------------------------------------------------
\1\ Medicare Payment Advisory Commission, Report to the Congress:
Medicare Payment Policy, March 1, 1999, pages 60-65.
---------------------------------------------------------------------------
The Balanced Budget Act of 1997 cut payments for Medicare
bad debts by 45 percent over the course of three years (25
percent in fiscal year 1998, 40 percent in 1999, and 45 percent
in 2000). The President, in his budget for fiscal year 2000
published earlier in the year, proposed to extend the reduction
to 55 percent for hospitals and to apply the 55 percent cut to
all other providers of services entitled to claim bad debt
reimbursement. The Congressional Budget Office scored the
overall proposal as producing savings of $400 million in fiscal
year 2000. We estimate that approximately one-third of these
savings result from the impact of the proposal on the hospitals
covered by Medicare's inpatient prospective payment system.
Mr. English. Could you give us your thoughts, then, on the
benefits or drawbacks that you foresee with regard to skilled
nursing facilities using an episodic payment method?
Ms. Wilensky. The biggest question with regard to an
episodic payment is whether or not you can predict the
episodes. I think there is some difficulty in going to a per-
case, which is why we have had the existing per-diem system. I
mean, if you could do it and explain the variation, that is
frequently desirable. The question is, is there a mechanism
that allows you to explain the variation across different
illness patterns. And my sense is that that remains
problematic.
Mr. English. My final question: Do you have any further
comment on the current HCFA implementation of the SNF
perspective payment system?
Ms. Wilensky. As we discussed earlier, there appears to be
concern that the sickest patients, the high acuity patients, do
not have adequate reimbursement under the existing system. Mrs.
Johnson raised the concern that waiting until 2001 and the
results of a HCFA study is a long time to wait, and I agree. It
seems to be generally believed that there is inadequate
reimbursement for high acuity patients. I doubt you will have
the luxury of waiting two more years.
Mr. English. Thank you for your testimony. Thank you, Mr.
Chairman.
Chairman Thomas. I thank the gentleman from Pennsylvania.
The gentleman from Minnesota wishes to inquire?
Mr. Ramstad. Thank you, Mr. Chairman. Dr. Wilensky, good to
see you again and I applaud the outstanding job you have done
in chairing the commission. I appreciate also the exchange you
had with my good friend from Florida, Mrs. Thurman, as well as
the recognition of the Chairman and Mr. McDermott of the
problems we have in Minnesota with the Medicare+Choice
payments.
I know your commission is not recommending any changes at
this time to the methodology by which Medicare+Choice payments
are calculated and I certainly agree with your report that we
must consider the various factors influencing plans to reduce
their number of service areas. Payment is not the only reason,
but certainly payment levels are very important.
Blue Cross-Blue Shield Minnesota, for example, just pulled
out of Minnesota completely and it is of concern to many in my
State, obviously. I haven't seen the numbers for next year yet,
Dr. Wilensky, but I understand we will finally see the blend
funded for most counties. This is certainly good news, but,
again, many in Minnesota still aren't confident that the blend
will be funded beyond next year. Is there anything you can
recommend to help us ensure that the changes in the Balanced
Budget amendment are able to operate fully and the blend is
there for more than 1 year?
Ms. Wilensky. Well, the first is that I think the fact that
it is coming in a year earlier than we thought it might is good
news. The second issue--and this is really one for me to give
back to you, because it is a statute issue, legislative issue--
is that a level of blend was specified in the Balanced Budget
Act. At some point, the Congress will need to consider whether
that is the right blend level or not.
It goes back to the question that we talked about earlier,
which is it will still allow for substantial variation in
spending across the country and whether or not that is regarded
as appropriate or inappropriate is an issue that the Congress
is going to have to decide. How much to peg at a national level
and how much to allow for local variation, remembering that the
people who are above the average are probably going to be
unhappy when they are pulled down toward the average, as well
as those coming up. But this is an issue, ultimately, I think
that Congress is going to have to take another look at.
Mr. Ramstad. In your judgment, Dr. Wilensky, wouldn't a
better way to do it be by regions, rather than nationally?
Ms. Wilensky. I think I would have to look at that to
decide, if not the local level, how best to do it. I would
prefer, rather than having a specific geographic area, think
about how medicine is best practiced, to set the parameters and
then to make adjustments for illness levels in the community
and cost of living. I actually am not that keen about using
means or medians or some other average measure because we
really don't have a good sense. It may well be that the
conservative practice used in Oregon or in parts of Utah or in
the State of Washington or in Minnesota is the model that would
be best and we ought to allow deviations from that only because
we think there is some reason to do so. So I am a little
reluctant to specify a particular geographic area.
Mr. Ramstad. Let me shift gears--and I certainly appreciate
your responses--to graduate medical education. Certainly, like
most of my colleagues, I am concerned about GME, graduate
medical education, payments. I didn't see much reference to
such payments in the report, either on how the funding be
handled or if changes to the payment levels are appropriate.
Now I know the bipartisan commission is looking at new ways to
fund GME, do you have any recommendations on such funding or on
these issues?
Ms. Wilensky. No, but we will in August. We owe you a
report on graduate medical education in August 1999. Normally,
you are correct, you would see in our March report our payment
recommendations. But because we had a specific stand-alone
report due in August, we have chosen to postpone that, but we
will back in a few months.
Mr. Ramstad. I appreciate that assurance and your
recognition of the importance of this issue. Mr. Chairman, I
yield back.
Chairman Thomas. I thank the gentleman from Minnesota. Does
the gentleman from Georgia wish to inquire?
Mr. Lewis of Georgia. Thank you very much, Mr. Chairman.
Dr. Wilensky, in your written testimony, you speak of the need
to increase Medicare payment for outpatient dialysis services.
As you know, many African-Americans, especially the elderly,
suffer from diabetes and depend on dialysis treatment. Would
you please explain to the Subcommittee in greater detail why
HCFA should increase the compensation for dialysis treatment.
Ms. Wilensky. We will have additional information in our
June report on quality issues, but our concern is that the
payment has been kept at the same amount, the so-called
composite rate, for so long that the costs are going to exceed
the payment rate. We already have had raised some issues about
mortality and outcomes data in the United States versus other
countries.
Now that is a complicated issue, but we think, even at the
preliminary stage of our analysis, that it is too low a rate or
that it has been frozen at too long a level. While we
anticipate providing more information on access and quality
issues in our June report and, I hope, in our next year's
report as well, even at this early stage we thought it was
inappropriate to say nothing because our sense is that saying
nothing means a continued freeze. Of course it may be a
continued freeze in any case, but we wanted to be on record as
indicating that some at least modest increase was appropriate.
Mr. Lewis of Georgia. Thank you, Dr. Wilensky. I have
another question. It is a little long and if you could be
patient with me for a moment. The New England Journal of
Medicine recently released a study which concluded that doctors
are significantly less likely to recommend cardiac
catheterization for blacks and women then for white men with
identical complaints of chest pain. As you know, this is the
best tool for diagnosing heart disease and all doctors were 40
percent less likely to recommend this diagnostic treatment for
blacks and women than for whites and men. This study is just
one in a long history of evidence showing that minorities and
women do not receive the same level of treatment as their white
male counterparts, despite having identical insurance coverage.
This is unacceptable and maybe we should find a way to do
something about it.
I believe that monitoring hospitals and requiring that they
report how their procedures vary by race and sex might help
close this gap. Identifying and educating doctors about the
bias is the best way to help eliminate it. And I want you to
respond, Dr. Wilensky, if you can, what type of monitoring and
public disclosure might be useful in making health care
providers more conscious of biases in treatment and health
providers and help us close this growing gap between minorities
and women and white men in America when it comes to health
care?
Ms. Wilensky. Well, as a middle-aged white woman, I
actually took a lot of notice of that report. It is, I think, a
concern to all of us to read that people with similar,
identical symptoms were provided with very different treatment.
And I think there are several ways to try to respond to this.
To the extent that we can make sure there are guidelines and
protocols, good scientifically available guidelines and
protocols, we can help provide at least a scientific basis for
making decisions.
The second thing we can do is to require outcomes and
reports, particularly in areas where we think variations may
exist, so that the public and the professionals can see the
kinds of variations that exist.
Finally, it may be that, because of the substantial
increase in at least women--our success rate for African-
Americans has not been as good--going into medical schools, may
have a greater sensitivity to the medical needs of women and
minorities then we have seen to date. Maybe, I guess, it is an
issue that we can hope that the State medical societies and the
national medical associations would regard as sufficiently
serious that they also attempt to reach out to their
membership. It was a very distressing report.
Mr. Lewis of Georgia. Thank you very much, Dr. Wilensky. I
yield back my time, Mr. Chairman.
Chairman Thomas. I thank the gentleman for yielding. We do
have a vote on. There will be two consecutive votes. But the
gentleman from California, Mr. Becerra, who is no longer a
Member of this Subcommittee, has sat through the entire process
and wishes to ask one question.
Mr. Becerra. Thank you, Mr. Chairman. Yes, one question
with three parts, right. [Laughter.]
No, let me thank the Chairman for giving me the opportunity
to be here and to ask these questions. Ms. Wilensky, thank you
very much for being here. I wish I could say I am still sitting
on the Subcommittee, but we don't have those kinds of choices
sometimes.
The financing issue with HCFA. I know it has become more
difficult. Let me ask you--and there may be a subpart, a real
quick subpart on this--we have been talking a lot about Social
Security these days. Social Security has administration just
the way Medicare has administration. HCFA does it for Medicare.
Social Security has its administration off-budget; it is not a
part of the appropriations process. Social Security gets to
determine its administration. We don't have that for Medicare
and HCFA, we are finding, is underfunded. We have got to do
something quickly, otherwise we are going to find it is going
to be very difficult to administer the program well. What are
your thoughts about doing something similar to, say, Social
Security where the administration, the costs of administration,
are done separately.
And then, if you can, within that question, answer the
following. The whole issue of using software for your billing
purposes--and I think you may have instituted this when you
were the HCFA administrator--if people use computer technology
to submit their claims rather than do paper claims, we can save
some money. I am being told it is about $1 per claim that we
save. The number I have is that there are 800 million claims
submitted; 20 percent are still done by paper. There is $160
million at a $1 a claim that is additional cost to HCFA by not
having more of our providers using the new technologies.
So, again, administration should be done more like Social
Security and, two, how can we provide an incentive for
providers to go more toward technology in the submission of
claims?
Ms. Wilensky. Let me do the second first and then I will go
to the first.
Mr. Becerra. Very quickly.
Ms. Wilensky. I think that you ought to phase in the
requirement, but it ought to be time-specific and tell
physicians that if they are not reimbursed, then they will have
to pay the additional costs. Institutions do it and I think if
you had a 2- or 3-year period or some period of phase-in, as
long as it was a date certain at that time, we would be done
with it. If we had started that when I was there, we would be
done for sure by now.
I am concerned about the administrative budget. I am a
little nervous about putting more into entitlements. That seems
to be the wrong direction to go. I don't know whether the HCFA
legislation offers any type of road map where, as I understand
it, there is some special funds because they are collected from
fraud and abuse, but they are appropriated. I don't want to get
away from the appropriation. I want to have Congress make a
distinct decision, but if there is a way to have it not
necessarily come out of the very limited discretionary moneys,
there may be a way to respond to both areas.
Social Security, as I understand it, is a fixed percentage
of the expenditures. That is too much of one more entitlement
to make me comfortable. But there may be a way that was a
direct appropriation, but being able to tap into the
entitlement fund that would allow for the discipline of direct
decisionmaking by the Congress, but without quite the
competitive pressure that happens when you are fighting against
vaccine money for low-income children or LIHEAP or any of the
other discretionary programs that you have to deal with.
So I would like to explore that to try to respond to both
issues.
Chairman Thomas. I thank the gentleman for his question. I
want to compliment him. Although his rules would have allowed
him to stay here, he chose to go someplace better. But the
commitment is appreciated, because you are still coming back
although you are not on the roster.
Very quickly, how unfairly this may be, kind of yeses and
noes, because I want to lay the groundwork as we go forward.
You are on record, for example, in the February Health Affairs
edition about Medicare, what is right and what is wrong and
what is next. The commission has been focusing on a premium
support model. Do you believe, if structured properly, that is
an appropriate way to go?
Ms. Wilensky. I personally, yes. The commission, MedPAC,
has not taken a position.
Chairman Thomas. While you have mentioned that you think
that major reform in Medicare probably will not occur until
2005 or 2009, is that a fairly accurate representation of some
of your predictions?
Ms. Wilensky. I think that Congress is more likely to act
in the year after a Presidential election and when the fiscal
pressures mount. You are the gentlemen who are going to be
voting, so I would be very happy to have you contradict that.
But as----
Chairman Thomas. Well often voting occurs in a climate and,
depending upon the climate, it either has a chance for a
greater success or less success. And, to the degree that people
who are recognized as experts say it is 2005, it makes it a
slightly more difficult environment.
When you take a look at the problems in terms of out years,
it is fairly obvious one of the reasons is that,
notwithstanding the better efficiency, effectiveness, getting
value to beneficiaries, that the premium support model might
save some money, if done correctly. And, if that is the case,
isn't it better to start it sooner rather than later because of
the impact on out years?
Ms. Wilensky. My preference is that the decisionmaking be
made sooner rather than later.
Chairman Thomas. Thank you. One of the challenges is the
question of transition. Do you have any thoughts--and I know
you cannot now expound them--and I would very much like any
discussion or presentation of transition questions, not tied to
any specific plan, but moving from our current structure to a
premium support model, because of the difficulty that we have
had with the Medicare+Choice within HCFA and if, as per our
dialog with the gentlewoman from Florida, my follow-up, that a
number of those questions would be negated and, therefore, they
would not be of concern in a transition discussion, between the
current structure and a premium support model, in a general
sense. And I would very much like--has the commission done any
thinking on this?
Ms. Wilensky. No.
Chairman Thomas. Well, it has been fairly evident since the
summer that we had maybe 10 and close to 11 votes and you would
be the people we would be relying on, so I would like to put
you on notice that, even if we don't get 11 votes, I believe
Senator Breaux has indicated we are going to be talking about
it legislatively. So on your August graduate medical exam
report, we may be asking you to look at some of those
questions. So if you think about them in general, you can plug
in the specifics as we move forward.
With that, thank you very much. The Subcommittee stands
adjourned.
[Whereupon, at 2:46 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of American College of Surgeons
The American College of Surgeons is pleased to submit this
statement to the Ways and Means Health Subcommittee for the
record of its hearing on the Medicare Payment Advisory
Commission's (MedPAC's) 1999 report to Congress, which was held
on March 2, 1999. The College's comments focus on Chapter 7 of
that report, which addresses the continuing reform of Medicare
physician payments. Specifically, we have concerns about the
report's discussion and recommendations regarding three key
issues: resource-based practice expense relative value units
(RVUs); professional liability insurance (PLI) expense RVUs;
and the sustainable growth rate (SGR) system.
Practice expense RVUs
The College is very concerned and, frankly, somewhat
confused about the set of issues that the Commission chose to
highlight for Congress in the section of Chapter 7 that
addresses the transition to resource-based practice expense
RVUs. In particular, we believe the Commission devoted an
inordinate amount of space in that chapter to issues of concern
to comparatively few physicians, while completely ignoring many
issues that have been identified by the Health Care Financing
Administration (HCFA) and others as having a significant impact
on the distribution of payments among various physician
specialties and services.
For example, the list included in the report of technical
and methodological matters that will be considered during the
transition to new practice expense RVUs contains no mention of
the following refinement issues, many of which were identified
by HCFA in its preamble to the final rule published on November
2, 1998:
revisions of the practice expense per hour data;
the accuracy and consistency of physician time
data;
the effect of rounding the amount of physician
time assigned to high volume services of relatively short
duration;
the impact of averaging the clinical practice
expert panel (CPEP) inputs for codes reviewed by more than one
CPEP;
the effect of mid-level practitioners on the
calculation of practice expenses per hour; and
the relevance of Y2K problems.
Further, MedPAC fails to note that none of the issues
identified in the 14,000 public comments submitted on the
proposed rule issued last June were ever addressed, including
those involving more than 3,000 codes that were identified as
misvalued. We are now in the first year of the transition to
resource-based practice expense RVUs, and the amount of work
that needs to be done by HCFA and the American Medical
Association/Specialty Society RVS Update Committee is
extraordinary. In fact, the publication schedule for the
proposed rule that must be issued on the 2000 Medicare fee
schedule effectively guarantees that the first two years of the
three-year transition period will pass before any significant
refinements can be made-even those that would address the most
obvious data errors.
We agree with a recommendation made last month by the
General Accounting Office (GAO) in its report, Medicare
physician payments: need to refine practice expense values
during transition and long-term, which advised HCFA to conduct
sensitivity analyses to determine which issues have the
greatest impact on Medicare payments and then prioritize its
refinement efforts accordingly. We also believe that MedPAC and
Congress should monitor HCFA's refinement activities closely.
If the key issues that affect the distribution of practice
expense payments in a substantial way are not resolved, we
believe Congress should consider delaying the transition to
fully resource-based practice expense RVUs for at least another
year. In other words, the 50-50 blend of new and old RVUs would
take effect on January 1, 2001, and the 75-25 RVU blend would
begin on January 1, 2002--with full implementation of the new,
refined practice expense RVUs beginning January 1, 2003.
We also noted that, unlike the recent GAO report, MedPAC
did not express concern about the potential impact of
cumulative Medicare payment reductions on beneficiary access to
care. The transition to resource-based practice expense RVUs is
causing many major surgical procedures to experience
substantial Medicare payment reductions in addition to other
payment cuts that occurred in prior years. Like GAO, we believe
HCFA should be directed to monitor particularly hard-hit
services closely for signs of impaired access.
We also believe that these cumulative payment reductions
may more severely affect some practices than others. For
example, practices that specialize in complex procedures are
likely to experience aggregate payment reductions much more
severe than the specialty level impacts published by HCFA in
the final rule. We recommend that practice level impacts be
estimated for different types of physician practices, such as
those located in urban and rural areas, teaching hospitals, and
those that focus largely on specific procedures such as major
joint replacement. These additional impact analyses could serve
as a critical first step for directing surveillance of possible
access problems.
PLI expense RVUs
The implementation of resource-based RVUs for PLI costs is
of considerable interest to the College. We are very concerned
about the factual accuracy of many points raised by MedPAC in
this section of the chapter, as well as the commission's sharp
departure from previous recommendations on this issue.
The College disagrees with MedPAC's conclusion that the
specifications set forth in the statement of work issued to the
HCFA contractor do not describe RVUs that are fully resource-
based. While we have some specific concerns and unanswered
questions about the details of HCFA's proposal, we believe it
is generally consistent with previous recommendations made by
the Physician Payment Review Commission (PPRC) for a ``risk-of-
service'' approach to developing resource-based RVUs.
Interestingly, MedPAC offers no explanation of why that
approach is no longer favored or how it is being modified by
the current recommendation.
Further, it is unclear how RVUs for over 7,000 physicians'
services can be developed with ``the frequency of closed
malpractice claims with payment, by service, as the basis for
the RVUs,'' as now recommended by MedPAC. We are unaware of any
nationally representative source of data that could be used by
HCFA to comply with this recommendation. Even if such data were
available, they are not likely to be useful in establishing
RVUs for the thousands of services for which malpractice claims
have never been filed. Additionally, the new approach being
proposed by MedPAC seems unnecessarily complex, given the
relatively straightforward nature of PLI costs.
We also are very concerned about the limited time available
for HCFA to develop the new PLI expense RVUs and about the
relatively limited information HCFA has shared with physician
organizations about how it plans to do so. We understand that
HCFA's contractor did not meet its due date of January 31,
1999, for submitting its first draft report. Thus, the agency
is already behind schedule.
Finally, we would note that whatever method HCFA eventually
uses to develop the RVUs should result in total payments to
physicians that actually cover the cost of their PLI premiums.
We made this point many times to HCFA with regard to the
practice expense issue, and so far the agency has not provided
any impact analyses to the public that are adequate for
determining how the new practice expense payments compare with
physicians' actual practice costs.
SGR limits
As you know, the American College of Surgeons was an early
supporter of the expenditure target concept as one means of
addressing unnecessary increases in the utilization of
physicians' services. We believe, however, that Medicare's SGR
system and annual update calculation need to be revised.
We were very pleased, therefore, that the Commission
recommended that Congress revise the SGR formula to include
measures of changes in the demographic composition of Medicare
fee-for-service enrollment. Such an adjustment is essential to
recognizing the effect on physician expenditures of changes
like the aging of the Medicare population and the continuing
growth of managed care enrollment (which could leave relatively
old and sick patients in the fee-for-service program).
We also are pleased the Commission recognizes that the SGR
does not include an appropriate adjustment factor to represent
improvements in medical technology and advancements in
scientific technology. Currently, the SGR includes only a
factor representing growth in the general economy, as measured
by changes in the real gross domestic product (GDP) per capita.
We disagree, however, with MedPAC's conclusion that GDP
growth is an appropriate indicator of the ability of the
economy to finance health care services--called
``affordability'' in the report. We are not aware of studies
showing that the economy suffers as the mix of economic
activity shifts to more health care services. The College
believes that targets setting limits on acceptable increases in
physician expenditures should be based on the need for
healthcare services-which bears no relationship to general
economic growth.
The report also recommends that the Secretary of Health and
Human Services correct estimates of various factors included in
the SGR when more accurate data become available. The College
strongly agrees with the Commission's recommendation, but we
are somewhat puzzled by its statement that HCFA lacks the
authority to make this change under current law. In last year's
proposed regulation on the 1999 Medicare fee schedule, HCFA
invited comments on the issue. We are not aware that the agency
has concluded it lacks the authority under current law to
correct estimates but, if that is indeed the case, Congress
certainly must provide that authority if there is to be any
logic behind the SGR system.
The College believes Congress should also consider several
other shortcomings of the SGR system. These issues involve:
Shifts in patient care settings. As services move
from the inpatient hospital setting to various ambulatory
settings, increased physician spending can result. The SGR,
however, is not adjusted for these effects.
Cumulative SGR formula. The current SGR is
endlessly cumulative back to April 1, 1997. Under this
formulation, physician spending that occurred years ago could
result in inappropriate adjustments to the update for current
years.
Service-specific policy and volume changes. The
lack of targeting in the SGR could result in services with
relatively stable volume growth being subjected to payment
reductions to compensate for volume and intensity increases in
particular services. For example, some have expressed concern
that revision in evaluation and management documentation
guidelines may result in a substantially larger number of
claims for high-level visit services.
Conclusion
Once again, the College appreciates this opportunity to
present its views and looks forward to working with members of
the subcommittee as they continue to review these and other
issues affecting physician payments under Medicare.
Statement of American Medical Association
The American Medical Association (AMA) appreciates the
opportunity to submit this written testimony for consideration
by the Ways and Means Subcommittee on Health and requests that
it be included in the printed record. Our statement will focus
on the comments the AMA provided to the Medicare Payment
Advisory Commission (MedPAC) regarding MedPAC's March 1999
report.
With the enactment of the Balanced Budget Act of 1997
(BBA), Congress opened a broad array of new private plans to
Medicare patients and began the work that will be necessary to
preserve the program for future generations. As with any new
endeavor, careful monitoring is required to ensure that
Medicare patients are protected as the new Medicare+Choice
program is fully implemented. At the same time, we must all
remember that most Medicare patients have decided to remain in
Medicare's fee-for-service program, at least for now.
It is therefore important that Congress and MedPAC not lose
sight of the potential problems that could arise in fee-for-
service Medicare as payments are subjected to tighter and
tighter constraints in the future. For this reason, the AMA is
pleased that MedPAC has focused on both the Medicare+Choice and
fee-for-service components of the Medicare program and we hope
the subcommittee will follow this example.
The AMA finds much to like in the Commission's report. We
have previously argued that Congress should modify the
Sustainable Growth Rate (SGR) expenditure target established in
the BBA and we are pleased that MedPAC is echoing many of our
suggestions in this area. We also hope that Congress will
follow the Commission's recommendation to reinstate the
requirement that the Health Care Financing Administration
(HCFA) report each spring on projected physician payment
updates for the following year. We are supportive of the
report's general conclusions on the Medicare+Choice program.
However, we do not believe that MedPAC has provided sufficient
analysis to justify its recommendation that Congress create a
single expenditure target that would apply to all outpatient
services.
Sustainable Growth Rate
Under the BBA, the SGR is based on projected changes in the
Gross Domestic Product (GDP), Medicare payment rates, fee-for-
service enrollment, and law and regulations. If Medicare
expenditures grow by more or less than the SGR, physicians'
payment updates the following year are reduced or increased by
enough to offset the difference between actual spending and the
target. However, increases above the normal inflation update
cannot exceed 3% and reductions from the inflation update
cannot exceed 7%.
Absent significant modifications in the SGR, physicians
face payment constraints that are far more severe than Congress
has imposed on any other sector of the health industry.
According to HCFA and MedPAC, updates will ping pong between
the MEI+3 and MEI-7 floor and ceiling. Overall, however, rates
will fall. In fact, shortly before enactment of the BBA, the
Congressional Budget Office (CBO) predicted that between 1998
and 2002, physician payments under the SGR would decline by 11%
before adjustment for inflation and by 19% after adjustment for
inflation.
No other health group has been asked to absorb this sort of
across-the-board decrease in payments. In fact, the many
managed care plans that are withdrawing from Medicare had been
guaranteed a 2% per year pay raise under the BBA. This inequity
is particularly ironic in view of the fact that physicians'
track record in controlling the growth of their services has
been far better in recent years than that of most other members
of the health industry.
The underlying problem with the SGR is that it assumes that
there is--or should be--some magic relationship between health
costs and national productivity. In fact, however, growth in
health spending typically exceeds growth in the GDP, and there
is no reason to expect health expenditures and the GDP to rise
at the same rate. If there were a serious economic downturn
with negative GDP growth at the same time that a serious
epidemic struck large number of Medicare patients, would
Congress really want to hold physicians to a target that called
upon them to reduce their services to the elderly?
Put another way, the SGR essentially decrees that no matter
what happens, the use of physicians' services by fee-for-
service Medicare patients cannot increase by any more than
growth in the GDP. There is no attempt to adjust for
technological advances, emerging medical needs, or changes in
medical practice. As a result, the AMA is concerned that the
current formula effectively puts the brakes on technological
innovation and improvements in the medical care and health
status of Medicare patients.
Congress has demonstrated its interest in fostering
advances in medical technology and making these advances
available to Medicare patients through FDA modernization,
increases in the National Institutes of Health budget, and
efforts to improve Medicare's coverage policy decision process.
But the benefits of these efforts could be seriously curtailed
if physicians face disincentives to adopt available new
technologies into their practices because of inadequate
expenditure targets.
The Physician Payment Review Commission had originally
recommended a 1 to 2 percentage point add-on to the SGR to
account for technology changes and MedPAC is repeating the call
for a technology add-on. The AMA believes it is imperative that
Congress modify the SGR to include a technology add-on of at
least GDP+2. However, MedPAC has not identified a specific
percentage so we suggest that in determining what the add-on
should be, Congress should consult further with both the
Commission and the Agency for Health Care Policy and Research.
Moreover, we urge Congress to consider other adjustments as
well. As MedPAC points out in its report, fee-for-service
patients in 1997 were somewhat older and sicker than in 1993
and physician payments per patient increased slightly as a
result. The Commission is therefore calling for an SGR
adjustment to reflect changes in the composition of Medicare
fee-for-service enrollment. The AMA heartily endorses that
recommendation and urges Congress to adopt language requiring
adjustments for changes in the composition of the fee-for-
service population. We note that HCFA recently observed in its
proposed payment system for hospital outpatient departments
that it is likely that Medicare patients who choose managed
care will be healthier than those who stay in fee-for-service
so that over time the intensity of services provided to the
fee-for-service patients could rise.
As MedPAC has also pointed out, hospitals are reducing
costs by trimming lengths of stay and scaling back on staff. As
a result, physicians are performing some additional services in
their offices and part of the hospital savings has translated
to increased costs for doctors. Since the SGR penalizes
physicians if growth in their services exceeds growth in the
GDP, doctors' ability to recoup these increased costs is
severely limited and the AMA is concerned about their ability
to continue absorbing the increases without deleterious effects
on care of their disabled and elderly patients.
The Commission has not yet addressed this issue. In the
AMA's view, however, this is a critical flaw in the SGR. We ask
that Congress direct MedPAC and HCFA to study the impact of
this phenomenon and recommend an additional adjustment to
account for the cost-shift from inpatient to outpatient
settings.
While these adjustments would greatly improve the SGR,
calculation of the target still will involve a series of
difficult and sometimes subjective projections that may prove
unreliable in the long run. In 1998, for example, actual GDP
growth was nearly three times as high as HCFA's 1.1%
projection. As a result, the 1998 SGR and the 1999 physician
update were about 1.5 percentage points lower than they should
have been. This mistake cost physicians some $645 million in
1999 and if not corrected will lead to additional losses in the
future under the SGR's cumulative baseline.
As HCFA acknowledged in its November 2 announcement of the
1999 SGR, there is a good chance that this year's -0.3% target
could be wrong as well. This negative target--which increases
the likelihood that physicians will exceed the SGR and trigger
payment reductions in future years--is due partly to the fact
that first quarter data suggest that GDP growth will exceed
HCFA's estimates again in 1999. However, the negative target
results primarily from HCFA's totally unrealistic projection
that in 1999, enrollment in fee-for-service would decline by
4.3% in fee-for-service and rise by 29% in managed care.
When HCFA published the SGR last November, the rate of
growth in Medicare managed care enrollment had been declining
each month since July, numerous managed care plans had
withdrawn from Medicare, HCFA had curtailed its own
informational campaign on Medicare+Choice and considerable
publicity had been generated about the Medicare patient
confusion surrounding the new options. HCFA did concede in the
announcement of the SGR that ``differences between its initial
estimate and a later estimate could ... affect the SGR by as
much as 1 percentage point'' or $400 million in either
direction. However, even this concession is based on an
assumption that enrollment will grow by about 23%, which seems
highly unlikely when enrollment growth has continued to decline
and in January of 1999 was just 11% higher than in January of
1998. Notably, enrollment actually fell between December of
1998 and January of 1999.
To make matters worse, it appears that HCFA's forecast of
growth in the GDP may be understated again in 1999. Hence it is
possible that the projection error could be three to four times
what HCFA concedes is possible.
The Physician Payment Review Commission recommended
retroactive adjustments for projection errors, and a year ago
HCFA indicated that it would make such adjustments. Medicare
officials now say that even though they don't think ``Congress
contemplated such significant variations'' between projected
and actual elements of the SGR formula, the law may not give
them the authority to make retroactive corrections. MedPAC has
recommended that Congress require HCFA to correct the estimates
used in the SGR calculations each year. The AMA concurs and
believes that Congress should move immediately to rectify the
injustice that was done to physicians this year.
Both HCFA and MedPAC have also pointed to a technical
problem having to do with the varying time periods used in the
SGR. A mismatch of the time periods is expected to trigger
extreme oscillations with payments ping-ponging between
positive and negative updates each year. HCFA has proposed a
non-specific legislative fix and MedPAC has offered a more
detailed proposal that would use the calendar year for both the
period covered by the expenditure target and the period for
which actual spending is compared to the target.
The AMA agrees that the oscillation problem needs to be
addressed. However, we do not have enough information to
evaluate HCFA's solution and we have some concerns that
MedPAC's approach could exacerbate projection error. We would
like to work with Congress as well as HCFA and MedPAC in
designing a solution to this problem. In addition, we believe
the SGR should be modified so that payment reductions of
inflation-7 are never possible.
Finally, we want to make it possible for Congress and
MedPAC to exercise more oversight of the SGR and the payment
updates that it produces. Under the previous expenditure
target, HCFA was required to provide projections of actual
spending compared to the SGR each spring and to calculate the
updates that would occur if Congress adhered to the expenditure
target formula. The agency could recommend changes from the
formula updates as could the Physician Payment Review
Commission, which evaluated the HCFA report and offered its own
independent advice to Congress. Sometimes Congress let the
formula updates take effect. In other instances, it increased
or reduced the formula rates.
When the old target was replaced with the SGR, Congress
replaced the language requiring the spring reports with a
provision requiring HCFA to report on the next year's SGR by
August 1. Neither physicians nor policy-makers have any inkling
of what the payment updates will be until they are announced in
November. To make matters worse, the Administration was three
months overdue in announcing that the 1999 SGR would be
negative.
The current timing of the announcements precludes Congress
or MedPAC from examining the data and determining if it will
produce a reasonable effect. As a result MedPAC, as mandated by
Congress, spends hours pouring over hospital financial data and
evaluating the adequacy of projected hospital rate hikes.
Ironically, however, neither Congress nor MedPAC even know what
the physician update will be.
MedPAC has proposed to correct this disparity by requiring
HCFA to publish the update report each year by March 31. The
AMA believes that oversight of the physician update must be
restored before physician payment rates fall to such low levels
as to jeopardize physicians' ability to continue providing high
quality care to Medicare patients. We therefore urge Congress
to follow MedPAC's advice and to require that HCFA provide
quarterly expenditure data as well so that both MedPAC and the
physician community can compare actual spending against the
target even if HCFA fails to produce its report in a timely
fashion.
Practice Expense Payments
Another important physician issue is the practice expense
changes that are now being refined by HCFA. We have some
reservations about the Commission's suggestion that third-party
payers other than Medicare be involved in future discussions of
practice expense methodology. However, we believe the
Commission has come up with a reasonable set of recommendations
for dealing with HCFA's decision to create a separate and
higher practice expense value for any service performed in a
physicians' office rather than a facility.
We do not disagree with HCFA's basic premise that providing
a service in the office generally costs physicians more than if
they deliver the same service in a facility. However, HCFA has
applied the policy even to procedures that are only rarely done
in the office and a number of specialties have pointed to
potential quality problems with this approach. We would
therefore endorse MedPAC's solution to examine these
differentials on a service-by-service basis and to apply the
facility-based practice expense value in both the office and
the facility unless there is clinical consensus that the
procedure can be safely performed in the office.
Payments in Other Outpatient Settings
In its most recent report, MedPAC is repeating a previous
recommendation that prospective payments for hospital
outpatient departments and ambulatory surgical centers should
be based on individual services, not groups of services. The
AMA agrees. Physicians examining the proposed system have found
it replete with problems that threaten Medicare patients'
access to certain services such as the newest and most
appropriate cancer drugs. In addition, we do not believe it
will ever be possible to extend a system that calls for so much
averaging into physicians' offices. HCFA has persisted in the
grouping approach despite MedPAC's recommendations, however, so
we believe Congress should now direct HCFA to develop a new
methodology that is based on individual services rather than
ambulatory patient classifications.
While we share MedPAC's skepticism about the payment system
that HCFA is developing to pay for hospital outpatient and
ambulatory surgical center care, the AMA does not understand
the Commission's enthusiasm for creating a new expenditure
target that would include all outpatient services in a single
target. In the BBA, Congress directed the Administration to
develop a ``method for controlling unnecessary increases in the
volume of covered'' services in hospital outpatient
departments. We believe that this emphasis on the control of
unnecessary services was wise and would like to remind the
subcommittee that expenditure targets do not distinguish
between necessary and unnecessary services. Rather the target
applies across the board, including all services in its scope
and then reducing payments for all services, not just those
that are believed to be unnecessary, if the target is exceeded.
In addition, the Commission has spent very little time
examining the details of how an expenditure target for other
outpatient services might work. MedPAC members have never been
presented with alternative designs. Nor have they seen
comparative data on the impact of all-encompassing targets
versus sector-by-sector targets where physicians and hospital
outpatient departments each would have their own separate
targets. The AMA therefore urges Congress to reject MedPAC's
recommendation that Congress should direct HCFA to ``develop
and implement a single update mechanism that would link
conversion factor updates to volume growth across all
ambulatory care services.''
Medicare+Choice
On another issue of great importance to Medicare patients,
the AMA appreciates MedPAC's efforts to ensure a smooth
implementation of the new Medicare+Choice program created by
the BBA. While we endorse the expansion of private options to
the traditional Medicare program, we believe that success will
depend upon the development of a fair and equitable payment
method that does not encourage biased selection. The AMA
therefore supports the Commission's recommendation that a new
risk-adjuster begin on schedule in January of 2000. We also
concur with HCFA's and MedPAC's call for a five-year phase-in
of the new adjuster.
Like the Commission and Congress, the AMA is worried about
the impact of managed care plan withdrawals on Medicare
patients. We would not like to see a repeat of the massive
exodus that occurred last fall. We note, however, that managed
care plans are guaranteed a 2% increase in payments every year
while fee-for-service physicians face potential cuts in their
payments. We therefore agree with MedPAC that Congress should
adopt a wait-and-see approach before taking any drastic steps
to encourage the managed care industry to continue to serve
Medicare patients.