[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




HEARING ON RURAL HEALTH CARE SERVICES: HAS MEDICARE REFORM KILLED SMALL 
                          BUSINESS PROVIDERS?

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                     WASHINGTON, DC, JUNE 14, 2000

                               __________

                           Serial No. 106-64

                               __________

         Printed for the use of the Committee on Small Business

                    U.S. GOVERNMENT PRINTING OFFICE
67-561                      WASHINGTON : 2000




                      COMMITTEE ON SMALL BUSINESS

                  JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
DONALD A. MANZULLO, Illinois             California
ROSCOE G. BARTLETT, Maryland         DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey        CAROLYN McCARTHY, New York
SUE W. KELLY, New York               BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio               RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania           DONNA M. CHRISTIAN-CHRISTENSEN, 
DAVID M. McINTOSH, Indiana               Virgin Islands
RICK HILL, Montana                   ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania        TOM UDALL, New Mexico
JOHN E. SWEENEY, New York            DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania      STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina           CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana                DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota             GRACE F. NAPOLITANO, California
MARY BONO, California                BRIAN BAIRD, Washington
                                     MARK UDALL, Colorado
                                     SHELLEY BERKLEY, Nevada
                     Harry Katrichis, Chief Counsel
                  Michael Day, Minority Staff Director




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 14, 2000....................................     1

                               WITNESSES

Buto, Kathleen A., Deputy Director, Center Health Plans & 
  Providers Health Care Financing Administration, U.S. Department 
  of Health and Human Services...................................     3
Evans, Zachary, President, Mobile Medical Services...............     6
Woods, Karen, Executive Director, Hospice Association of America.     8
Goldhecht, Norman, Vice President, Diagnostic Health Systems.....    10
Dombi, William A., Vice President for Law, National Association 
  for Home Care..................................................    12

                                APPENDIX

Opening statements:
    Talent, Hon. James...........................................    34
    Velazquez, Hon. Nydia........................................    39
    Manzullo, Hon. Donald........................................    41
Prepared statements:
    Buto, Kathleen A.............................................    43
    Evans, Zachary...............................................    52
    Woods, Karen.................................................    56
    Goldhecht, Norman............................................    81
    Dombi, William A.............................................    87
Additional information:
    Hospice of Acadiana, Inc. Written Testimony..................    96


 
HEARING ON RURAL HEALTH CARE SERVICES: HAS MEDICARE REFORM KILLED SMALL 
                          BUSINESS PROVIDERS?

                              ----------                              


                        WEDNESDAY, JUNE 14, 2000

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m. in 
room 2360, Rayburn Office Building, Hon. James M. Talent 
(chairman of the Committee) presiding.
    Chairman Talent. Well, let's open the hearing. I will go 
ahead and give my opening statement and if the ranking member 
gets here, she can give hers. If not, we will recess just long 
enough for the vote.
    Today the Committee will be examining the fate of small 
businesses health care providers three years after the Medicare 
reforms incorporated in the Balanced Budget Act of 1997. These 
reforms promised us an improved ability to reduce waste, fraud 
and abuse in the Medicare system and to achieve substantial 
savings. Certainly savings have appeared. Perhaps fraud and 
waste have been curbed but there are some concerns that service 
for Medicare recipients is suffering as a result.
    Over the past two years, many of us have read the newspaper 
articles or seen the reports on television concerning the 
bankruptcies of major nursing home chains and the financial 
problems of HMOs that provide significant Medicare services. 
Most recently, we saw SIGNA Healthcare abandon Medicare 
services. The common reasons given revolve around the 
reimbursement and fee schedules established by the Health Care 
Financing Administration after the 1997 BBA changes.
    However, as significant and oftentimes disturbing as those 
events were, a little noticed change was sweeping through the 
health care industry and devastating the provision of care 
available, particularly in rural areas. Small businesses 
involved in the provision of ancillary services to nursing 
facilities, hospices and home health care patients were failing 
or reducing service in rural areas at a record pace. These 
small businesses offered lab services, physical therapy, 
occupational therapy, wound care, intravenous therapy, portable 
electrocardiogram, x-ray, and pharmacy services to rural areas.
    These providers offer a range of medical services that a 
rural nursing facility would find impossibly expensive to 
duplicate. Unfortunately, the providers are fast disappearing 
and it appears that the reason may be the Medicare reforms 
enacted in 1997. Since the enactment of BBA '97, a number of 
previously covered ancillary services have been eliminated. In 
addition, many other Medicare services have been effectively 
eliminated in rural areas by the reduction or elimination of 
the transportation reimbursement rates. Ancillary service 
providers for Medicare patients at a rural facility now receive 
no reimbursement for travel to the facility and are forced to 
either provide services at a loss or suspend service to those 
facilities altogether.
    At the same time, other provisions of BBA '97 are taking 
their toll. The Prospective Payment System was instituted in 
1998 to consolidate the billing of Medicare A services through 
nursing facilities. Facilities are billed directly and then 
reimburse the ancillary care providers. Unfortunately, this has 
resulted in some facilities taking advantage of their position 
as ``gatekeepers'' to extract discounts from small providers. 
In addition, many facilities are increasingly slow in providing 
reimbursement.
    This creates an addition strain on the system--ancillary 
providers faced with this situation refrain from providing 
service. While this could be considered by some as good because 
it prevents unnecessary use, it also creates a scenario for 
misuse. Services previously provided at bedside are now 
provided at hospitals, with the added cost of ambulance 
transportation and the added stress to the patient. We know 
these services are shifting to hospitals. Only last year 
Congress acted to increase reimbursement to rural hospitals in 
recognition of that added strain. The question is, have we only 
treated the systems?
    Today we will discuss these problems and I hope begin a 
dialogue to restore the small business sector of the health 
care industry. We have a number of witnesses who will testify.
    What I will do is recess the hearing so that we can go and 
vote and then come right back and we will start with our first 
witness.
    [Recess.]
    Chairman Talent. I will recognize the gentlelady from New 
York for her opening statement.
    Ms. Velazquez. Thank you, Chairman Talent.
    Today we examine the need for access to health care in 
rural America and the unintended consequences that the Balanced 
Budget Act of 1997 created. In study after study, it has been 
determined that those Americans living in rural areas tend to 
be poorer, older and less insured. Indeed, nearly 22 million 
Americans live in federally designated areas where there is 
complete shortage of adequate health care professionals or 
medical facilities. And to make that situation worse, those who 
often need health care the most--senior citizens--represent 
one-fifth of the total rural population.
    This is without a doubt a travesty for this country. 
However, while the need is still great, the commitment by the 
federal government is diminishing. This is due in large part to 
the Balanced Budget Act of 1997 that has hit small rural health 
care providers especially hard.
    Thus, small companies were paid through by a simple cost 
reimbursement system. Simply put, they were reimbursed for 
reasonable related to providing these services. In most cases, 
the costs often involve transportation of critical important to 
these remote sites but these expenses are only reimbursed on a 
fixed basis, regardless of how far they travel to get to the 
facility they serve.
    Unfortunately, these companies are now forced to carry an 
extra burden without proper compensation for reasonable costs 
of doing business and it is for this reason that we must take 
all of these issues into consideration, whether we are talking 
about patient care or protecting small business, to ensure that 
every American, no matter where they live, will have that 
continued access to basic health care.
    I have looked forward to the start of this hearing. I 
believe it is important to reveal the unique issues revolving 
around access to quality rural health care or the lack thereof. 
We are all interested in hearing from the small businesses that 
provide health care services in rural areas and how we might be 
better able to continue their growth and success.
    It is not in the spirit of equality that America has 
promised all of us to be denied the basic necessities shared by 
all only because of where you live. Many of these people in 
these ruralareas who these companies service are farmers. 
Farmers have committed their lives and their families' lives to 
ensuring that each and every day all of us have food for our families.
    I look forward to working with Chairman Talent and the 
other members of the Committee in seeking ways to mitigate the 
negative impact the Balanced Budget Act of 1997 has on our 
Nation's small businesses. We are faced with the serious 
dilemma with this issue and we must find a solution to prevent 
a serious problem from becoming a potential health care 
disaster for business and for to people they serve.
    Thank you, Mr. Chairman, and I look forward to hearing from 
our panels today.
    Chairman Talent. I thank the gentlelady and without 
objection, anybody who wants to submit other statements for the 
record, they will be entered into the record. I have one from 
Mr. Manzullo and I am sure there are other members, as well.
    [Mr. Manzullo's statement may be found in appendix.]
    Chairman Talent. We will go to our witness panel. The first 
witness is Kathleen A. Buto, who is the deputy director of 
health plans and providers for the Health Care Finance 
Administration. Thank you for being here.

  STATEMENT OF KATHY A. BUTO, DEPUTY DIRECTOR, CENTER HEALTH 
PLANS AND PROVIDERS, HEALTH CARE FINANCING ADMINISTRATION, U.S. 
            DEPARTMENT OF HEALTH AND HEALTH SERVICES

    Ms. Buto. Thank you, Chairman Talent, Congresswoman 
Velazquez, for inviting us to participate in this hearing today 
to discuss our efforts to support small businesses that provide 
health care in America's rural areas.
    We understand that rural providers face unique challenges 
in serving the medical needs of our beneficiaries. Assuring and 
enhancing access to quality care for rural beneficiaries is a 
priority for us and we are committed to continuing to work with 
you to ensure that these unique needs are met.
    In fact, we have established a Rural Health Initiative 
Group within our agency to increase and coordinate attention to 
rural issues in all areas of our work. Each of our regional 
offices now has a rural issues point person and you and your 
provider constituents can call directly to raise and discuss 
issues, concerns and ideas. A list of these contacts is 
attached to my written testimony.
    We are also working to enhance our relationship with the 
Small Business Administration and ensure our policies are 
responsive to the needs of small business communities, 
including those located in rural areas. This cooperative effort 
includes training sessions for our staff on small business 
issues--more than 100 staff were trained last year by the SBA--
cross-agency review of regulations, and participation in forums 
that were held around the country by the SBA ombudsman.
    Let me move to some of the issues directly under the 
jurisdiction of Medicare, because I know you are interested in 
those. We are proceeding with several projects to evaluate 
Medicare coverage for telemedicine services and, of course, 
this is particularly of interest in rural areas, to find ways 
to get some of the more sophisticated services available in 
urban areas more directly to rural beneficiaries.
    For example, in February we initiated a project with 
Columbia University to explore how teleconsultations in urban 
New York City and rural Upstate New York affect patient care 
and outcomes.
    Additionally, we are working with the Agency for Healthcare 
Research and Quality to assess the cost-effectiveness of 
telemedicine services and the need to expand telemedicine 
beyond current payment regulations. We are anxious to share our 
results with Congress and we look forward to doing that later 
this year.
    We have already implemented the majority of provisions in 
the Balanced Budget Act of 1997 that assist rural providers. 
Working together, Congress and the Administration last year 
enacted the Balanced Budget Refinement Act, which includes a 
number of reforms and other changes to the BBA that address 
some of the BBA's unintended consequences. A number of these 
refinements are particularly helpful to providers in America's 
rural areas and their patients. We also have taken a number of 
important administrative actions to assist rural providers that 
complement the legislative changes included in the BBRA.
    The BBRA allows more hospitals to be designated as critical 
access hospitals or rural referral centers. It holds rural 
hospitals harmless for four years during the transition to the 
new outpatient Prospective Payment System. It extends the 
Medicare-Dependent Hospital program, which assists small rural 
hospitals serving mostly Medicare patients, for five years. And 
it gives sole community hospitals an enhanced annual update for 
fiscal year 2001.
    For skilled nursing facilities, it provides an immediate 
increase in payments for facilities that treat high-cost 
patients. It creates special payments to facilities that treat 
a high proportion of AIDS patients and excludes certain 
expensive items and services from the PPS consolidated billing 
requirements.
    Importantly, BBRA provides an across-the-board increase of 
4 percent in fiscal year 2001 and 2002 and gives nursing homes 
options on how their rates are calculated. It places a two-year 
moratorium on the physical and occupational therapy caps that 
were included in the BBA, which appeared to be presenting 
particular problems for patients in these facilities.
    BBRA also delays a scheduled pay cut for home health 
agencies until after the first of the year 2001 under the 
Prospective Payment System for home health services. It 
provides an immediate adjustment to the per-beneficiary limits 
for certain agencies, and gives assistance payments to help 
cover some of the costs associated with collection of data as 
part of the home health PPS system. It excludes durable medical 
equipment from consolidated billing.
    And we have taken a number of administrative steps to help 
rural and other providers. For example, we are making it easier 
for rural hospitals to be reclassified and to receive payments 
based on higher average wages in nearby urban areas. We are 
using the same wage index that is used to calculate in-patient 
rates for the Outpatient Prospective Payment System and we are 
postponing the expansion of the hospital transfer policy, which 
we understand has had an adverse impact on rural hospitals.
    We are extending the time frame for repaying home health 
overpayments from one year to three, with the first year 
interest-free, and we are postponing the requirement for home 
health agencies to obtain surety bonds. We will refine the 
classification system for skilled nursing facilities in a 
budget-neutral way to increase payments for medically complex 
patients.
    We are also redoubling our efforts to more clearly 
understand and actively address the special circumstances of 
rural providers and beneficiaries through our rural health 
initiative. We have been meeting with rural providers, visiting 
rural facilities, reviewing the impact of our regulations on 
rural health care providers, and conducting more research on 
rural health care issues.
    We are participating in regularly scheduled meetings with 
the Office of Rural Health Policy in the Health Resources and 
Services Administration to make sure that we stay abreast of 
emergingrural issues and we are working directly with the 
National Rural Health Association on a number of issues and to evaluate 
rural access to care issues and policy changes.
    Our goal is really to engage in more dialogue with rural 
providers and ensure that we are considering possible ways of 
making sure rural beneficiaries get the care they need. We are 
looking at best practices and areas where research and 
demonstration projects are warranted and we want to hear from 
those who are providing services to rural beneficiaries about 
what steps can be taken to ensure that they get the care they 
need.
    We are committed to ensuring rural beneficiaries continued 
access to quality care and we are all concerned about the 
disproportionate impact that policy changes can have on rural 
health care providers.
    We are grateful for the opportunity this hearing provides 
to discuss these important issues and to explore how we might 
address them in a better and more responsible manner.
    I thank you again, Chairman Talent, for holding the hearing 
and I would be happy to answer your questions.
    [Ms. Buto's statement may be found in appendix.]
    Chairman Talent. We will have questions in a few minutes, 
after the other witnesses have testified and I thank you for 
being here.
    Our next witness is Zachary Evans, who is the president of 
Mobile Medical Services from St. Joseph, Missouri. Thank you 
for coming such a long way, Mr. Evans, and we would love to 
hear your testimony.

STATEMENT OF ZACHARY EVANS, PRESIDENT, MOBILE MEDICAL SERVICES, 
                         ST. JOSEPH, MO

    Mr. Evans. Thank you, Mr. Chairman and distinguished 
members of this Committee. I would like to request at this time 
that my entire written statement be entered into the record.
    It is a pleasure to have the opportunity to testify before 
you today on an issue of great importance to our industry and 
small business owners nationwide.
    As Chairman Talent said, my name is Zach Evans and I am the 
president of Mobile Medical Services, Incorporated. I am also 
the immediate past president of the National Association of 
Portable X-ray Providers.
    My small business was established in 1992 and is located in 
St. Joseph, Missouri. I currently employ five individuals on a 
full-time basis.
    I appear before you today to explain the dramatic impact 
upon my company and others like it across the country of severe 
cuts in Medicare reimbursement rates. These reductions, 
mandated by the Balanced Budget Act of '97, have hit small 
businesses the hardest and have, in turn, forced small 
businesses to cut back on nonprofitable services.
    This impact is particularly alarming because it has 
ultimately led to a reduction in essential medical services for 
thousands of Americans, particularly those in rural areas.
    In essence, what are seeing are the early symptoms of a 
potentially fatal disease that afflicts our Nation's health 
care delivery system. The reduction in Medicare reimbursement 
rates mandated by BBA '97 has resulted in the complete 
elimination of profit margins for small business providers of 
some vital services, particularly in the rural areas.
    As a provider of medical services which are transported to 
the patient's bedside, reimbursement rate reduction has forced 
me to view nursing facilities or private homes that are located 
in rural areas as financially unsound clients. This means that 
I and other small business providers of portable x-ray services 
cannot afford to provide a service which is not only safer, 
more comfortable and convenient to the patient but less 
expensive for Medicare.
    It is profoundly ironic that as companies such as mine are 
forced to deny service to rural patients because of Medicare 
cost-cutting, the only alternative, transportation by 
ambulance, significantly drives up Medicare costs.
    These service cut-backs to rural areas must be viewed as 
the early warning signs of a more far-reaching problem. As 
small business providers are forced to shrink their service 
area to remain solvent, rural patients and facilities will be 
forced to spend more to obtain these medically necessary 
services. This cycle of cost-cutting leading to higher costs 
for poor services is potentially lethal to the health care 
delivery system as a whole.
    Perhaps the most dramatic cut mandated by the BBA was the 
total elimination of the transportation fee for portable EKG 
services. Clearly if a service provider receives no 
transportation reimbursement for a service, traveling long 
distance to rural facilities is simply not economically 
feasible. In my company's case, I lose an average of $50 for 
every EKG I perform. This average includes service to local 
facilities. If I were to calculate our losses based on distance 
traveled, you would see a steadily rising column of red ink, 
increasing with every mile we travel to the facility or home.
    I am no politician but I do feel that I understand voter 
sentiments sufficiently to predict the obvious. Americans would 
be appalled to learn that EKGs will not be available to elderly 
rural patients simply because they reside outside of the more 
profitable urban and suburban areas.
    I can say, however, that Americans would be proud to learn 
that you, Mr. Chairman, led the fight last year to reinstate 
the EKG transportation rate. For that effort, I would like to 
take this opportunity to thank you on behalf of the providers 
and patients alike for standing up for this vital cause. I hope 
that with your strong voice on our side, we may prevail this 
year and obtain the EKG transportation rate before more 
patients who are denied this basic care.
    Unfortunately, EKG services only represent a small portion 
of the portable x-ray business. What has happened regarding EKG 
services is now spreading to the x-rays. My company once 
offered 24-hour-a-day, seven-day-a-week service to all 
patients. We have been forced to cut our services to patients 
located 25 miles distance or more, to between an 8 a.m. and 
3:30 p.m. Monday through Friday. Additionally, we are currently 
turning down all new requests for services outside of a 25-mile 
radius.
    This represent a massive reduction in services, yet we are 
currently considering dropping these remaining facilities 
altogether. For our company alone, that decision would deny 
vital medical services to approximately 15 homes with an 
average of 80 beds each or a total of 1,200 patients.
    1,200 patients denied service from one small company in 
Missouri. I know that dozens of other small business portable 
x-rays providers are either considering or have already enacted 
similar cuts. I have to stress that these service cuts will not 
save my company or others like it without some form of rate 
increase. These cuts can only slow our losses somewhat. Without 
a rate change, portable x-ray services will inevitably vanish, 
leaving ambulance transportation, with its higher cost and 
lower patient satisfaction, as the sole alternative.
    By the actions of the chairman last year and through many 
conversations with the Small Business Committee staff, I know 
that this Committee is truly supportive of the Nation's small 
business community. I sincerely hope that all members of this 
Committee will join us in calling for reasonable solutions to 
this critical problem.
    Thank you again for the privilege of sharing my views and 
experiences with you today.
    [Mr. Evans' statement may be found in appendix.]
    Chairman Talent. Thank you very much.
    Our next witness is Karen Woods, who is the executive 
director of the Hospice Association of America. Miss Woods?

     STATEMENT OF KAREN WOODS, EXECUTIVE DIRECTOR, HOSPICE 
                     ASSOCIATION OF AMERICA

    Ms. Woods. Thank you. Good morning, Mr. Chairman and 
members. I am very proud personally and professionally to be 
able to represent hospice agencies, to represent the patients 
that they care for and their caregivers.
    The Hospice Association has been very concerned about the 
changes that occurred with BBA '97. Our main focus is looking 
at accessibility and quality of end-of-life care and feeling 
that all of us deserve quality end-of-life care and we have 
certainly seen this hampered by changes in BBA because of the 
way it has affected how hospice operation can work.
    This is a national issue and it seems to be doubly impacted 
upon rural hospices because of all the information that we have 
heard already, just information on the ability to hire staff, 
to maintain that staff, to provide that service on an 
appropriate reimbursement rate.
    Currently, only 20 percent of Americans receive terminal 
care from hospice programs. When you consider that as a 
national average, again you can certainly say that in a rural 
area, that is going to be much less than 20 percent. This means 
that most people are dying with a terminal illness without the 
care and support that they need and that families are not 
provided support following the death.
    Considering the issue of low population density in rural 
areas, it makes it inherently difficult to deliver services and 
specifically with such a targeted area--people with a terminal 
illness--to get the care where it can be provided, and that 
care is in the patient's home.
    The rural health agenda, some information that we have 
provided was telling us that rural Americans are faced with 
issues that create barriers to care because of an inadequate 
supply of primary care physicians, as well as other health care 
providers, such as nurses, home care aides, social workers and 
counselors, and that is a reality. And those particular 
disciplines are the heart and soul of a hospice home care team.
    In conversations with providers that we represent, we have 
been getting information about the impact and some of the 
things I am going to list are just in broad terms what they are 
feeling. Definitely the shortage of nurses, home care aides, 
therapists and social workers, making it very, very difficult 
to recruit and then maintain these people. And the Medicare 
benefit is defined in a way that the hospice programs are 
required to provide certain core services where they cannot 
contract with people; they have to be full-time employed, and 
this is very difficult when the supply is low.
    There has also been a decrease in the hospice market basket 
updates and that obviously has affected every aspect of hospice 
care and the services provides.
    Insufficient reimbursement barely allows them to maintain 
appropriate wage and benefit packages for their staff.
    There is definitely a lack of funding for innovative 
modalities, such as telehealth care. Now certainly when the 
Medicare benefit was designed, telehealth, telemedicine did not 
exist, but in an, I will say, restrictive per diem rate, there 
is no edge and no give for new technologies.
    Hospice programs are faced with restrictive regulations 
that in some areas prevent them from contracting with 
specialized nursing services. There may be one particular 
procedure that normally the day-to-day functions of a hospice 
nurse does not need to address, but because of regulation, they 
are restricted from contracting with a specialist to do so.
    They are required to have their home care aides supervised 
only by a registered nurse. It would be nice if a licensed 
practical nurse could do that. It would certainly allow for a 
little freedom and less expensive staffing.
    There is also restrictive regulatory definitions of service 
areas. Mileage and driving time are the criteria. The criteria 
is not the quality outcome. It makes it very difficult and 
sometimes almost impossible for a hospice program to provide 
service in a rural area.
    We were talking to a program in Nevada and there is an hour 
drive time. That is the limit. If they cannot make it to the 
patient in an hour's drive time, they cannot service the area. 
And in the rural area, that is probably not quite halfway to a 
routine visit.
    We have had a report from some members in the southwest 
region of Kansas and they were talking about the domino effect 
of BBA '97. Just this past May, on May 31, the regional 
hospital center closed its home health agency and the home 
health agency, in turn, needed to close its hospice program. 
Their concern is there is a county without any home care 
services. They said if this was an urban area, competition 
would certainly move in and they would have patients referred 
to other agencies as they closed their doors. There is no one 
to turn the care over to, so these patients are left 
unattended. To be left unattended in your last dying weeks 
without the support and care of a hospice program I think is a 
criminal act.
    We have added some information in an appendix to our 
comments and I would just like to go through those. These are 
some suggestions, recommendations that we have and actions that 
we would think would be good to take.
    Looking at funding grant programs for training therapists, 
medical social workers, nurses and home care aides and other 
hospice personnel with a focus on providing home and community-
based practice in areas where shortages exist.
    Would like to amend a particular section of the Social 
Security Act to include a provision allowing specialized high-
tech nursing services to be provided by contract under the 
direction and supervision of a hospice.
    Would like to see legislation enacted that would allow 
LPNs, especially in rural America, to supervise home health 
aides and certainly under the general supervision of a 
registered nurse.
    Would like to see federal programs that finance hospice 
services to adjust reimbursement to allow for appropriate wage 
and benefit levels for all clinical staff.
    Would like to see clarity in the definition of hospice 
multiple site service areas and certainly looking at uniform 
reasonable and an up-to-date policy that focusses on the 
ability to provide quality care, rather than imposing arbitrary 
and ineffective time and distance requirements.
    Would like to see legislation clarified around the issue of 
telehealth and have that as a service provided by a hospice and 
that Medicare should provide appropriate reimbursement for 
technology costs for rural hospice providers. And I was pleased 
to hear that HFCA is looking at that very issue.
    And we would like to see the restoration of the reductions 
in the market basket updates that were enacted by BBA '97 and 
also the 1999 Omnibus Appropriations Act.
    And I thank you and again thank you for your attention to 
this very important issue.
    [Ms. Woods' statement may be found in appendix.]
    Chairman Talent. I thank you and your members for your 
service to people.
    The next witness is Norman Goldhecht, who is the vice 
president of Diagnostic Health Systems from Lakewood, New 
Jersey.

   STATEMENT OF NORMAN GOLDHECHT, VICE PRESIDENT, DIAGNOSTIC 
              HEALTH SYSTEMS, LAKEWOOD, NEW JERSEY

    Mr. Goldhecht. Thank you, Mr. Chairman and members of the 
Committee. I ask that my entire written statement be entered 
into the record.
    I appreciate the opportunity to appear before you today. My 
name is Norman Goldhecht and I serve on the board of directors 
of the National Association of Portable X-Ray Providers as the 
regulatory chairman. I am also an owner of a portable radiology 
company in New Jersey.
    Mr. Chairman, the portable x-ray industry has been 
seriously threatened by the passage of the Balanced Budget Act 
of 1997. We are now truly seeing its effects and they are 
devastating to small business. Our industry is made up of 
predominantly small businesses, small businesses that cannot 
withstand the razor sharp cuts in revenue we have experienced 
over the last several years.
    There are three areas that I would like to focus on this 
morning. I do not wish to sit here and simply complain about 
the problems my industry is currently enduring. I want to offer 
some suggestion as to how we might move toward resolving our 
problems, thus ensuring that we survive the massive changes to 
the Medicare system currently under way.
    The three topics I wish to focus on are as follows. A rural 
modifier, transportation of EKG, and consolidated billing.
    As far as the rural modifier, portable x-ray providers 
service many skilled nursing facilities, SNFs, and home-bound 
patients that reside in rural areas of this country. We must 
travel considerable distances to and from these sites to offer 
these patients our valuable and cost-effective services.
    Our industry has been one of the first cost-saving 
alternatives for the Medicare system. Based on a 1995 cost 
report performed by the Center for Health Policy Studies, the 
average charge to Medicare was appropriate $87 for a typical x-
ray performed by a portable x-ray provider. The average cost to 
transport that same patient by ambulance was $420. If the 
patient is admitted to the hospital, the cost rises to 
thousands. It should also be noted that the transportation 
portion of our fee is prorated among the number of patients we 
see per visit. The ambulance fee is per patient.
    We are recommending an additional fee when our services are 
required in a rural area. We understand that this is an 
established practice in other areas and we feel that the 
additional travel that is required would warrant such a 
request. The fee would be reimbursed in the form of a special 
CPT code only to be used and billed when a provider performs 
services in a rural area.
    Transportation of EKG service. Currently we do not receive 
any additional reimbursement to travel to a nursing facility 
when performing an EKG. This reimbursement was taken away from 
an industry when the Health Care Financing Administration 
deemed CPT code R0076 a noncovered service. The service had 
previously been covered.
    My current reimbursement for the EKG technical component is 
$16.49. This is the same reimbursement that a physician's 
office or a hospital receives if they were to perform the test 
in their office. Each time an EKG is performed, we must 
dispatch a technician who must travel anywhere from five to 50 
miles or more. Clearly this does not cover the expense of the 
exam.
    We feel the simple solution is to reinstate EKG 
transportation as a covered service.
    Consolidated billing. The pending onset of consolidated 
billing is a major issue facing our industry. We have been 
working with several agencies to seek a resolution. The BBA 
mandated Prospective Payment System, PPS, and consolidated 
billing for skilled nursing facilities. The basic premise of 
these acts is that they take away the control of the billing 
aspects of our members and give them to the nursing facilities.
    While consolidated billing has been delayed, PPS has been 
in effect for over a year and we have seen the effects. Under 
PPS, residents that are Part A patients of a SNF have to be 
billed directly to the SNF and the SNF will reimburse the x-ray 
provider for the service. The problems that we have encountered 
are that the SNFs sought large discounts and have delayed 
payment from 90 to 180 days and in some instances, due to the 
large number of nursing home chains that have declared 
bankruptcy, we have never received payment.
    This has put the small businesses in our industry in 
financial difficulties, and while PPS only represents a small 
portion of the work that is performed by our providers, it has 
given us a look into the future of consolidated billing.
    Consolidated billing will require our members to bill the 
SNF for the services performed to the residents that are 
currently being billed to Medicare Part B. This will certainly 
cause the small businesses a hardship. The SNFs will demand 
discounts from our current fee schedules. The consolidated 
billing requirement of BBA '97 requires that all ancillary 
providers performed in the SNF be billed directly to the SNF, 
rather than the provider billing Medicare directly.
    Although consolidated billing has been delayed, the 
principles behind the system cause serious problems with the 
small businesses. Medicare currently pays providers within 21 
days of receiving a valid claim and pays interest when they do 
not pay promptly. Additionally, a provider never has to be 
concerned about receiving reimbursement or having to give a 
discount in order to provide services.
    The onset of consolidated billing would cause providers to 
wait, on average, 90 days or up to 180 days or even longer for 
payment. The SNFs would also require the providers to give 
discounts for the added billing expense that they would incur.
    The main objective of consolidated billing was to reduce 
fraud and abuse. It was to make the SNFs the gatekeepers of 
services performed in their facilities so that they might 
monitor the billing that is being done. This is a budget-
neutral issue, as the amount of money the government is paying 
is only being transferred from the providers to the SNFs.
    This is why we have suggested the voucher system. This 
would require the providers to submit a bill at the end of each 
month to the SNF for all services performed. The SNF then would 
have to sign off on an approved voucher and the provider then 
could bill Medicare and receive payment directly. This would 
accomplish a needed compromise. The facilities verification 
would cut down on fraud and abuse while allowing the providers 
to receive payment directly and promptly. It should be noted 
that if the SNFs receive payment directly from Medicare for 
services that the provider has delivered, they would have a 
direct interest in having more services performed. If they 
require providers to discount their services, they would 
receive additional funds, meaning the more services performed, 
the more revenue to the SNF. Since the SNF is a requester of 
services, they control how many services are to be performed.
    The voucher system is a budget-neutral solution which 
allows us to solve the problems that can arise with 
consolidated billing while still accomplishing the government's 
main objective.
    Thank you, Mr. Chairman and members of the Committee, for 
the opportunity to address you today. I would be happy to 
answer any questions.
    [Mr. Goldhecht's testimony may be found in appendix.]
    Chairman Talent. I thank the gentleman.
    Our last witness is Mr. William A. Dombi, Esquire, who is 
the vice president for law of the National Association for Home 
Care. Thank you, sir.

 STATEMENT OF WILLIAM A. DOMBI, ESQ., VICE PRESIDENT FOR LAW, 
               NATIONAL ASSOCIATION FOR HOME CARE

    Mr. Dombi. Thank you, Mr. Chairman and Ms. Velazquez and 
members of the Committee for the opportunity to testify here 
today.
    The question posed in this hearing is whether Medicare 
reform has killed small business providers. With home health 
agencies, the answer is an unqualified yes. Home health care is 
a dying breed in this country at this point as a direct result 
of the Balanced Budget Act and the institution of payment 
reforms with the Medicare home health benefit.
    Mr. Talent, in your State of Missouri, Health Care 
Financing Administration statistics indicate that 79 home 
health agencies have closed since the Balanced Budget Act, 
which represents more than a third of the agencies in that 
state, but the updated numbers are 103. So we have an 
accelerating pace of closures. In addition, 32 out-of-state 
home health agencies are no longer servicing residents in the 
contiguous areas between the state of location and the State of 
Missouri.
    With respect to home health in the Virgin Islands, it has 
become the virgin island. You do not have home health agencies 
available to provides services on all of the islands. And each 
of your states is in a similar position, both in metropolitan 
but in particularly rural areas.
    Rural areas are subject to closures due to the changes in 
reimbursement, primarily for two reasons. One, Medicare, with 
its changes in reimbursement, did not respect the differences 
between rural home health agencies and nonrural home health 
agencies. The reason is that the system was designed with the 
concept of averaging and we all know that the only way 
averaging works is if there is only one participant in the 
process because with averaging, there are people above and 
below the line and rural home health agencies are generally 
below the line. They have costs which for years have been 
documented to be 12 to 15 percent greater than the cost of 
nonrural home health agencies. The level of utilization of 
services has been documented to be over 15 percent greater due 
to the nature of the patients served in those rural 
communities.
    Home health agencies, by definition are small businesses, 
94 percent by HCFA's definition are small businesses. And for 
rural home health agencies, when we speak rural, we speak of 
float planes in Alaska. In Montana we talk of snowmobile 
delivery of services and in the Delta we talk of boats just 
transporting people from house to house.
    When we look at the definition of rural, the nearest 
McDonald's is 100 miles away, and that is a long way to go to 
get a hamburger and you are not going to get home care 
delivered out into those locations.
    The policies and practices of the Health Care Financing 
Administration have added to the problems. In one respect, they 
tout their successes relative to rural health care providers, 
but they do not mention home care rural health care providers 
in that respect. In virtually every case where a home health 
agencies has a debt with the Medicare program as a result of 
the reimbursement changes, the Health Care Financing 
Administration has opposed reorganization of that debt in 
bankruptcy court. They have institutionally opposed the use of 
the compromise authority they have on any of the debts.
    And, as a result of that, public health agencies and local 
taxpayers throughout the Midwest and the rest of the country 
have been forced to subsidize the Medicare program. Small 
business owners have subsidized them for years and have closed 
down as a result of that, as well.
    The Prospective Payment System for home health begins 
October 1, 2000 if everything goes on schedule and I know this 
Congress and the home care industry and the Health Care 
Financing Administration hope that PPS is the solution to the 
problem caused by the IPS of the Balanced Budget Act, and I 
think the answer to that for rural small home health agencies 
is: no. It is a perpetuation of the problems caused by the 
Interim Payment System. It still works on the basis of 
averages. And despite the authority that Congress specifically 
gave to the Health Care Financing Administration to recognize 
geographic differences in home health service delivery, the 
Health Care Financing Administration has failed to put in place 
a rural differential and that will lead to further 
deterioration in the foundation of delivery of home care 
services.
    Why is there a need for a differential? Well, in 
Washington, D.C. a home health agency will drive probably four 
to five miles to get to a patient's home. In Northern Virginia 
the same and in the areas of Baltimore, the same in Maryland. 
But when you are in Montana, you are driving two and a half, 
three hours between patients' homes. Productivity levels are 
significantly lower.
    Home care is a local service. Unlike the closure of rural 
hospitals where patients were then transported by ambulance to 
the rural hospitals, you are not going to transport the patient 
to a home care setting. You transport home care to that 
patient.
    In addition, with prospective payment at this point in 
time, the Health Care Financing Administration still refuses to 
allow the use of telehealth services within the prospective 
payment method that is being offered to the home health 
agencies. No flexibility is being provided to them.
    Additional problems--labor and workforce, and part of those 
are due to Health Care Financing Administration policies. 
Hospitals are allowed to reclassify their location for purposes 
of wage index adjustments when the hospital competes with 
metropolitan-based hospitals for the same labor force. Home 
health agencies, under the current system and the prospective 
payment system, are not allowed to do that.
    And finally, a HCFA policy that is causing great problems 
in rural areas is their definition of what is an allowable 
branch location. A branch location, by definition, cannot be 
more than one hour away from the parent sites and in order to 
perform supervision and oversight of the branch, you cannot 
rely upon electronic transmissions. In other words, telephones, 
fax machines, email and everything else cannot be considered in 
determining whether a parent home health agency can adequately 
supervise a branch site.
    Branch sites will allow rural home health agencies to 
expand their territory, expand their patient base, which is 
necessary to survive under the prospective payment system. With 
a rural home health agency, one single patient at $12,000 of 
cost and $3,000 of reimbursement on the episodic 60-day basis 
will bankrupt that home health agency, and that is due to the 
small size and adverse selection by coincidence that will occur 
for those rural home health agencies.
    Within this testimony, I have offered several solutions. We 
need to change the branch office definition. We need to bring 
in a rural home health agency differential in terms of 
reimbursement. We must make the wage index applicable to home 
health agencies, the same way it is applicable to the 
hospitals. And we have to create some workforce flexibility to 
respect the fact that rural areas and small businesses 
providing home health services do not have a labor control that 
you see with larger employers across the country.
    I plead with you to try your best to give rural home health 
agencies the opportunity to serve rural patients. We have a 
dying breed and by next year, if the system continues as 
proposed, we will not have a foundation for home health 
services to provide to the rural communities to restore. Thank 
you for your time.
    [Mr. Dombi's statement may be found in appendix.]
    Chairman Talent. I appreciate that testimony. Go a little 
bit more into the branch office for me, if you will. HCFA is 
discouraging home health agencies from establishing branch 
offices. Is that what is going on?
    Mr. Dombi. The Health Care Financing Administration 
actually has a variety of policies on this issue, depending 
upon what regional office that you are dealing with and varying 
interpretations, as well. But predominantly, the interpretation 
begins with the question: Is the branch office more than 60 
minutes away from the parent site? And if it is, it is 
presumptively a nonqualified branch office.
    They have made occasional exceptions and there have been 
some recent----
    Chairman Talent. And if you are not qualified it means you 
cannot provide service out of that branch office?
    Mr. Dombi. You cannot locate a branch there and provide 
services and receive Medicare reimbursement. And as it comes to 
the question of oversight and supervision of the branch by the 
parent office, you have to have staff from the parent actually 
go to the site of that branch on a regular ongoing basis and 
the parent's staff must be capable of also seeing the patients 
served by that branch in order for there to be considered 
adequate supervision.
    Chairman Talent. Is the concern fraud or something here? Is 
it the quality of service or what?
    Mr. Dombi. We have asked the question how do you assess the 
appropriateness of supervision and oversight if the branch is 
10 miles away and frankly, we have not yet received an answer 
to that question because we think the answer should be the same 
answer that is applied when it is an hour away or two hours 
away or three hours away.
    So we do not know the rationale. We suspect that the 
rationale is more that branch offices traditionally with HCFA 
were actually unknown entities. They did not have a formal 
reporting mechanism for branch offices, so they did not have a 
formal oversight mechanism for branch offices, either.
    Chairman Talent. Do you want to comment on that?
    Ms. Buto. Yes. Actually, the chairman was right. I think 
the concern about branch offices did grow out of a concern 
about a variety of things coming together. One of them was 
whether the branches really were providing bona fide home 
health services under the conditions of participation. And then 
you get into issues is it such as, just an office and you have 
unsupervised staff; is this really a home health agency? Is it 
really tied to an entity?
    This set of requirements came out of that concern and some 
of them were looked at by the Inspector General's office and 
other oversight agencies that pointed out this concern.
    So Mr. Dombi is right that this is something where the 
regional offices have some discretion and that we are, I am 
told, working with the industry to try to come up with more 
uniform standards that can be applied. There is an underlying 
issue of whether the branch itself, in fact, is a real part of 
the home health agency or whether it is an unsupervised office 
that really would not meet Medicare conditions of participation 
for quality and supervision. So that is really where it comes 
from.
    Chairman Talent. One of the reasons I ask about this is 
because it seems to me one area of some relief here is to be 
pretty ruthless in eliminating requirements that raise costs 
and do not have any relationship to quality.
    In other words, in a field where the problems are so severe 
and the money constraints are so great, every dollar that we 
waste with some stupid regulation that says a branch office can 
only be an hour away, it cannot be one hour and five minutes 
away, is really almost criminal because we do not have the 
dollars to waste.
    I am not saying he is right. One of my complaints about 
HCFA over the years has been almost a nonchalance regarding how 
much money may be wasted in filling out a form or some 
regulation that does not accomplish anything and I wonder if 
you share that sense of urgency at all.
    Ms. Buto. Oh, absolutely. And I think definitely the point 
about the right balance and allowing branch offices because 
they are needed for access purposes is a good point and I think 
we have to figure out how to do that in a way that everybody is 
confident that, in fact, this is a home health agency or a 
branch of a home health agency and I believe that it is 
possible to do that without having unwarranted requirements 
that simply waste money.
    If I could just comment on one other thing that Mr. Dombi 
said. I know that the numbers show that a number of home health 
agencies have closed or consolidated, and we frankly do not 
know how many of them have consolidated versus really closed.
    We and the inspector general's office and the GAO have all 
looked at and we have also been in touch with our state health 
insurance counselors, who, like ombudspersons, who take 
complaints from beneficiaries about access to home care and we 
are not finding that has been a major problem.
    In many of the areas where these agencies have closed and 
there has really been a relative handful of states, those 
states tend to be the states where we had a doubling or so of 
agencies within the last few years and they are the ones where 
disproportionately we are seeing a reduction. But I just wanted 
to address the issue of the closures because many of them are 
consolidations.
    Chairman Talent. Well, let me go into that and get this on 
the record with you because ever since the Congress passed the 
act of '97, I have been myself besieged with home health care 
providers and I am sure everybody in this Committee has had the 
same experience and these are people who we know in the 
communities we represent and know to be credible people. I mean 
they may be mistaken but they are not walking into my office 
and lying to me about the situation. Anybody can be mistaken.
    And over and over again, and I know every member of 
Congress has had this experience, and I guess what I am trying 
to say to you is that is so inconsistent with the response that 
really there is not a problem, which is kind of what you just 
said.
    Now I appreciate your candor and I do not want to jump down 
your throat for it. In fact, it is almost a relief to me that--
it would be a relief to me to believe that the agency believes 
there is no problem. I would rather believe that than that you 
know that there is a problem and you just do not care about it. 
Do you know what I mean? At least we should be able to 
establish whether there is a problem or not but I have just 
been told over--obviously, it is anecdotal; my office does not 
have the capability of conducting an empirical survey or 
anything--that, in fact, they are closing down; they are not 
able to provide the same level of service. People have to be 
suffering out there.
    Is there anybody here who has not had that experience?
    Ms. Buto. I did not want you to think I was saying there 
was not a problem for home health agency providers. I think the 
interim payment system has been a problem for many home health 
agency providers and some of it has been because it is based on 
a cost experience in the past.
    So essentially what it did is it said let's take your cost 
experience that occurred several years ago and you may have 
grown in terms of the number of visits you provide and so on. 
We are going to essentially roll you back to that earlier 
period and set tight limits based on what your experience was 
back then, on what your overall cost was that will be 
recognized. There is no question that I think that has had an 
impact.
    What I was addressing was the beneficiary impact as we know 
it and has been surveyed by GAO and others, but I do think and 
we are quite anxious to move to the prospective payment system 
where we believe by paying on an episode basis, the system will 
be better for home health agencies, it will provide the greater 
flexibility for them. They will not be under the same kinds of 
constraints and there will be more ability to move.
    I was interested to hear Mr. Dombi say if we continue on 
the current path, I guess I am wondering if he is not favoring 
going to the prospective payment system because I actually 
thought he was. But I do believe that the October 1 system will 
be better. It will not be perfect. Some of the things we have 
done to really scale back on recovery of overpayments are 
designed to help home health agencies so they do not face 
drastic reductions. So I did not want to leave you with that 
impression.
    Chairman Talent. It seems to me logical that there will be 
a tendency on the part of the facilities to want to overuse 
services and then make some money back through discounts from 
the providers, particularly since they are complaining that 
they are not being compensated enough. Do you think that that 
is going to be a problem?
    Ms. Buto. The home health agencies, you mean----
    Chairman Talent. As I understand the PPS and somebody 
correct me if I am wrong, you are going to be billing through 
the skilled nursing facilities. Is that correct?
    Ms. Buto. Oh, you are talking about the consolidated 
billing.
    Chairman Talent. Yes.
    Mr. Dombi. That does not apply to home health services.
    Chairman Talent. Okay. It applies to the other ancillary 
services.
    Ms. Buto. Yes. It would be things like x-rays, as the 
gentleman was saying, would be billed through the skilled 
nursing facility and as he said, it has already been billed 
that way for the prospective payment for skilled nursing 
facility.
    Chairman Talent. Are you concerned about the phenomenon 
they are talking about the skilled nursing facilities, in 
effect, driving--using it as an extra revenue producer for 
them? In other words, they will overuse services, try to create 
discounts with the ancillary providers and then they get to 
keep what is left. So, in effect, we achieve the opposite of 
what we want. We get services overused and we also have the 
pressure on the small businesses.
    Ms. Buto. Well, of course, first of all, we have not put 
this system in place because it is one of the more difficult--
it involves both skilled nursing facilities and all these other 
providers having to--we have to have a way to collect those 
claims and actually validate them.
    We are hearing a lot of this kind of concern. I just want 
to tell you on the other side, and we do not know exactly what 
is going to happen, but both we and the oversight agencies have 
this among the things we will be monitoring the most closely to 
see what actually is going to happen.
    But the concern on the other side, that led to the 
enactment of the consolidated billing provisions, was that we 
were getting billed without much oversight by the nursing 
facility which had the patient by a number of different 
suppliers--physical therapy, DME, x-ray, et cetera, suppliers 
providing things like supplies that are used in their nursing 
home.
    In addition to Medicare, there often was a Medicaid payment 
involved because many of these individuals get both nursing 
home coverage through Medicaid and Medicare.
    What was found in a variety of different surveys by 
oversight agencies and our auditors was duplicate payment, 
payment that was very hard to trace to medical necessity, and I 
think the general recommendation that came out of those studies 
was we need an accountable entity here that looks at what is 
being provided to that patient and it ought to be the facility.
    So I understand what the gentleman is saying about the 
potential that the facility will try to get discounts and so 
on. We understand that. I think we are going to be concerned 
about access to these critical services if that really seems to 
be a problem.
    On the other hand, HCFA, as you know, is constantly 
barraged with criticism for setting prices. We do not know what 
prices are, we cannot predict what the marketplace is going to 
do, and that is why we are moving to these kinds of systems 
where we give more of that flexibility to providers to make 
those trade-offs and try to really strike the best bargain for 
their patients.
    Chairman Talent. What about Mr. Goldhecht's idea of like a 
voucher where the facility would still have to approve--that is 
how I would understand it.
    Mr. Goldhecht. Correct.
    Chairman Talent. They would approve your billing but they 
would be paid directly.
    Ms. Buto. And again they would be paid on a fee schedule, 
as I understand it, that we set.
    Again I think we would have to go back to one of the 
underlying premises of the PPS, which is did we want to give 
the facilities more of that control or do we want to continue 
setting the price and sort of guaranteeing a price to every 
supplier?
    HCFA is behind and supports the idea of turning that 
decision-making over to the facility, but we are obviously 
going to worry about access issues. That is where we are, and 
no one has raised the voucher issue before to us and we would 
certainly be glad to take it under consideration as we think 
about possible changes in the system, but that is a new idea.
    Chairman Talent. Let me raise two more issues before I 
recognize the gentlelady from New York and they are related. 
Parts of the testimony today just seem to me to be again so 
inherently plausible and I want to get your response to it.
    One of them is the concern about ending reimbursement for 
the cost of transportation or travel really for an EKG service 
that we have heard about today. So now we are in a situation 
where--I guess this is Mr. Goldhecht's testimony--the current 
reimbursement for the EKG technical component is $16.49 and 
that is what you get regardless of how far you have to travel 
to give this EKG.
    Mr. Goldhecht. Right.
    Chairman Talent. So it just seems to me that obviously the 
cost for small businesses are going to be greater if you have 
to travel two hours to administer the EKG than if you can do it 
in five minutes. And if the reimbursement schedule or system 
does not recognize that, it is flat out obvious that you are 
going to be underpaying for certain kinds of EKGs.
    Why isn't Mr. Dombi right in saying the same thing about 
the need for a rural differential for home health? If you 
calculate on an average, you are obviously going to be 
underpaying people who have greater costs to provide the 
service.
    Now, what is HCFA thinking, that they will just cost-shift 
or something or that the average is high enough that they can 
share it? And then the problem with that is if you are a rural 
provider, you do not have any lower cost services. You are 
traveling to everybody you are serving.
    Ms. Buto. The issue that you are raising and that----
    Chairman Talent. Ms. McCarthy just wrote two words here: 
gas prices, which is something that we are all thinking about 
now and you might want to talk about that, also.
    Ms. Buto. Well, let me directly address that. Medicare does 
not routinely pay for the cost of transportation and whether we 
should or not, and I think this Committee would say we should--
for instance, if a rural physician as to travel, we do not pay 
his gas costs. A rural nurse-practitioner, et cetera. We do not 
do that as a rule.
    The issue of whether we should I think is a legitimate 
question. It would require a change in the law and not just for 
home health, but for a variety of other areas of the Medicare 
program. I think you can argue that this would be true for a 
whole variety of providers and suppliers who must travel 
distances to get to individuals.
    On the issue of the EKG transportation fee, we originally 
established that to recognize basically the van costs and the 
need to transport large equipment, as we do for portable x-ray, 
to remote locations or to other sites.
    In the time since we established that fee, EKGs have become 
a lot more portable. I had a life insurance examination 
recently and the technician brought over the EKG and the blood 
work tools and so on in a briefcase.
    Recognizing the issue of mileage, which you are raising, 
the original point of that transportation fee was to recognize 
the fact that large equipment or delicate equipment needed to 
be transported by van, and that is how we established the rate.
    And the other thing that has happened since then is that 
because an EKG is more portable, nursing facilities and other 
providers now have more of this equipment on hand than they did 
when the rate was originally established.
    So that is the rationale. I understand your point about gas 
and transportation and mileage, but that is really not the way 
that fee was established.
    Chairman Talent. Mr. Evans wants to say something.
    Mr. Evans. I would like to make a comment on Miss Buto's 
information she gave you.
    While technology has shrunk and made things lighter and 
more portable, the costs have also gone up. I am sure that 
before you got these new timers, the old timers were probably 
big and bulky and a lot different than what you have now.
    My concern is that not only has the cost gone up for the 
technology; you still have to transport that in some way. You 
still have to transport that piece of equipment some way. It is 
more cost-effective for us to put all of our equipment into one 
unit and have it go from site to site in one unit. However, in 
our case, if we have an EKG 20 miles to the north and an x-ray 
30 miles to the east, we actually take that equipment out of 
that, put it in one of the smaller vehicles and let a 
technologist go do this other exam.
    So I guess my point is we try to be very, very cost-
effective and watch the dollars that Medicare is giving us. I 
used to own a home health agency and went through some of the 
problems Mr. Dombi was speaking of. It seems to me, and this is 
my own viewpoint, that the people that are still in business 
today, they went back, as Miss Buto talked about, going back 
and looking at the numbers of what happened years ago, not 
based on whether gas prices rise or your business grows or 
whatever. It seems to me that the only home health agencies 
that are still in business are the ones that raised the prices, 
that had high costs back years ago.
    My concern is overall that we stop looking at this through 
rose-colored glasses and actually look at what is happening in 
rural America and make the changes based on what is happening 
in rural America.
    Mr. Goldhecht. Mr. Chairman, I just want to clarify 
something Ms. Buto had said. She had mentioned that the 
equipment got lighter and easier, more compact and that nursing 
facilities might get it. Well, I can tell you first-hand that I 
do not know any nursing facilities that own EKG equipment. Most 
of the larger chains have gone bankrupt and they are not 
looking to make any capital purchases.
    That being said, the volume, the sheer volume of a typical 
skilled nursing facility does not warrant them buying a piece 
of equipment that they might use three times a month. That is 
why they have a service like us. And whether the equipment has 
gotten lighter, less expensive to purchase, the cost of 
transport is the cost of transport. That has always been the 
case.
    I have been in business for 15 years. I can tell you that 
the difference between what I paid for an EKG machine 15 years 
ago and what I pay today is negligible. That is not going to 
keep me in business or put me out of business. The cost that it 
takes me to send somebody down the road five miles, 50 miles, 
75 miles, that is what is killing my business.
    Chairman Talent. Because they are not administering EKGs 
when they are driving a van or a truck or something.
    Mr. Goldhecht. Right.
    Chairman Talent. Is there a private pay segment of the 
market? And if so, what do they pay?
    Mr. Goldhecht. I am happy you asked that question. What is 
the problem with our industry is that specifically portable x-
rays, we have been designed for the skilled nursing facility. 
You and I can go to a radiologist's office, a hospital, and get 
an x-ray. It is much cheaper that way. But the skilled nursing 
facilities cannot send their patients out. It is much more 
costly.
    So any act that Medicare changes the reimbursement or takes 
away reimbursement affects 100 percent of our business. We do 
not, unlike laboratories or ambulance companies that do work 
for hospitals, do work for private physician's offices, they 
can offset some of that cost. We do not have that.
    Chairman Talent. So there is no private pay. There is not 
anybody paying privately for EKGs.
    Mr. Goldhecht. Right.
    Mr. Evans. Excuse me just a minute. If you do not mind, 
Norman, I am going to interject here.
    In my case, yes, I do have some private payers that we work 
with for EKGs.
    Chairman Talent. What do they pay for a comparable----
    Mr. Evans. Depending on the client, as we negotiated our 
contracts, $100 to $175. However, and I want this to be part of 
the record because I think this is very important, we are 85 to 
90 percent dependent on Medicare.
    Chairman Talent. Sure.
    Mr. Evans. I do not have that many private patients.
    Chairman Talent. What I am getting at is Medicare is paying 
$16 and a private pay is paying $100 to $175.
    Mr. Evans. Correct. And just to be accurate here, the 
transportation was bundled into that $16 rate.
    Chairman Talent. Isn't that a suggestion that maybe we are 
undercompensating, Ms. Buto? If the private sector, which--as I 
understand, you had a problem with fixing prices. I always 
restrain myself. I tend to get mad at HCFA and then I say, you 
know, in the first place, a lot of itis Congress, not HCFA. And 
in the second place, it is very difficult to plan prices and all the 
rest of it for a segment of an economy. I mean planned economies tried 
it for years and it was very difficult, so you have a very difficult 
job.
    I mean to the extent there is a private pay market and they 
are willing to pay $100 to $175 for what you are paying $16 
for, it suggests to me that you are below the competitive rate.
    Ms. Buto. Maybe, but I would like to know where that comes 
from and how widespread it is and the reason is that we have 
not really had any complaints, from skilled nursing facilities, 
who use these portable x-ray providers, that they cannot get 
them at this rate.
    Again, it is a tough thing for us to get into if, in fact, 
the service is willing to be provided at the rate and I think 
what I hear people saying is maybe they can provide it at this 
rate, but they are concerned that deeper discounts will be 
required if we go to this bundling, consolidated billing 
approach, that will further erode what they are getting.
    I would like to see the information from the private 
payers. It may be something we need to look at.
    Chairman Talent. I recognize the gentlelady from New York. 
I appreciate the Committee's patience.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Buto, I am concerned about the statement that was made 
by Mr. Dombi. He made reference to the fact that your agency 
does not respect the differential in terms of rural and urban 
areas and that you failed to put in place a rural differential 
in terms of reimbursement. What is your comment regarding that?
    Ms. Buto. This prospective payment system and the interim 
payment system are very, very driven by the way the statute is 
written. If there was a rural differential in the statute--and 
I do not know; maybe during the discussions on the legislation, 
that was discussed--if there was one in it, it would be there.
    There are other areas where, for instance, physician 
payment, there is a rural bonus that is provided to physicians 
in rural areas and undeserved areas. There are very specific 
areas.
    The other thing he mentioned, which is being able to 
reclassify your wage index so that you get higher payment, in 
hospitals, rural hospitals can reclassify to an urban area, get 
a higher wage index and get higher payment that way. That is 
not available--he is right--to home health agencies.
    Again, that is something that is driven by the statute and 
statutory changes could be made along those lines, but they 
have not been considered before, that I know of. Maybe they 
were and I just was not aware of it.
    And, again, it is the kind of issue, just like the gasoline 
issue, that I think affects more than just home health, affects 
more than just portable x-ray. It is an issue that would need 
to be looked at for rural providers more generally.
    Ms. Velazquez. Yes?
    Mr. Dombi. If I might respond to that. In fact, the 
Congress did look at the issue and specifically in the 
prospective payment statutory language said that the Health 
Care Financing Administration or the Secretary of HHS, in 
designing a prospective payment system, has the authority to 
reflect geographic variations between home health agencies.
    The system that has existed up until now for home health 
agencies has been a per-visit cost reimbursement system with 
cost limits. Since 1979, the first year of those cost limits, 
the Health Care Financing Administration has had a difference 
between a rural cost limit and an MSA, a metropolitan 
statistical area cost limit, and there is no specific language 
in the statute that mandated that.
    So they have both regulatory power from preexisting 
practices and statutory authorization to do so and we have, in 
the discussions and in the formal comments we have given to 
HCFA relative to the prospective payment system, have said that 
they should consider a distinction between the rural and the 
nonrural home health agencies.
    I would like to go on the record for one thing just for Ms. 
Buto's sake. We still do support moving to a prospective 
payment system away from the interim payment system but the 
difference is minor. It is a difference of the degrees of 
temperature in hell because the interim payment system is home 
care hell for our constituents and the prospective payment 
system promises to offer a solution for some of the providers 
of services but I do not believe that the solution is there for 
the rural small home health agency.
    Everywhere I go--in fact, yesterday I was in Idaho and the 
question that was raised to me when I was explaining the 
prospective payment proposed system was, ``How will it affect 
we in the rural areas?'' And my answer was, ``You would have no 
different system than you have anywhere else.''
    One last remark in case I do not have any other 
opportunity. My understanding is Ms. Buto is leaving the Health 
Care Financing Administration and I would like to take a little 
bit of leave here and give her my thanks for all the work she 
has done with the Health Care Financing Administration.
    We have had our differences of opinion over the 18 years I 
think that you have been there but I have always found her to 
be receptive, professional and certainly rational in her 
positions. So I would like to thank her for that and wish her 
successor well.
    Ms. Buto. Thank you.
    Ms. Velazquez. You wanted to say something more?
    Ms. Buto. No, I was just going to say that I misunderstood 
what he was saying. And he is right about the interim payment 
system. And he is right about the issue of the cost limits in 
the past. I thought he was talking about the interim payment 
system, where there the structure was a regional per-
beneficiary limit. It was very structured and we may have had 
some flexibility there. I thought we followed the statute 
pretty closely in order to get it done in just a few months. It 
had to be done in about four months.
    So he is right that in terms of the comments we have gotten 
on the new system, we are looking at issues like this.
    Ms. Velazquez. Ms. Buto, why does Medicare reimburse rural 
areas at a lower rate than urban?
    Ms. Buto. Well, a lot of what Medicare is doing now and 
even some of the new systems are based on historical costs and 
on wages. The fact that it is harder to actually go out and 
attract professionals to an area does not really get factored 
into that so much.
    So what we look at when we do these surveys of wages is 
wages paid, and wages have been in many respects lower across 
the board, although there are definitely exceptions, in health 
care in rural areas versus urban areas. So that is what you are 
seeing.
    What Medicare, and the Congress has actually done a lot of 
this over the years, is to try to look at evening that out. In 
some respects, the Medicare Plus Choice Program, the HMO 
program that we have in Medicare, looked to raise the payments 
in rural areas well above what we were paying our regular fee-
for-service providers to try to attract HMOs to serve those 
areas. It has not, unfortunately, succeeded the way I think 
people had hoped it would.
    In the physician payment area, the geographic adjustment 
factor where you adjust the geographic costs actually is not a 
total adjuster, and that was done, again, to give more money to 
rural areas.
    So if you look at various ways in which Medicare pays for 
services, there are many instances where special provisions 
were attempted to be made for rural areas--the bonus payments 
for physicians, et cetera.
    I think fundamentally what I guess I have concluded over 
the time I have been there and, as Bill said, I have been there 
quite a long time, is it is very hard just to get changes in 
the number of providers who are willing to serve areas based on 
reimbursement. It helps, but it does not seem to be the whole 
solution and I know that people are really struggling with how 
can we get telemedicine services and other things into the 
system so they will broaden the access?
    Ms. Velazquez. One area that we care about on this 
Committee is regulations. Can you explain to us what has your 
agency done to monitor how regulations from the Balanced Budget 
Act of 1997 have affected the small rural health care 
providers?
    Ms. Buto. We have done and we hope to issue soon an 
analysis of some of our findings. We have done fairly extensive 
both anecdotal gathering up of information from our regional 
offices.
    We basically said to them, look, we cannot wait for data. 
That takes too long. We need to hear the stories that you are 
hearing out there of what is happening to providers. We have 
gathered that information together.
    We have actually looked at things like Bureau of Labor 
Statistics has information on a monthly basis on hours worked 
in various industries and we have looked at that and home 
health and SNF and so on, to see whether it appears there is 
any change. Whether you can directly attribute it or not, we 
wanted to know if there were changes in the way services are 
being delivered.
    We have now a capacity to look at cash or payments that are 
being made on a daily basis to providers through our 
contractors and we actually set that up during the Y2K exercise 
so that we could monitor what was actually happening in case 
there was a breakdown somewhere.
    So we are trying in a number of ways to look at current 
indicators of what the impacts are by area, including rural 
areas. Rural areas are probably at the top of our list of 
vulnerable areas, as well as inner city areas. That is one of 
the areas we are concerned about and one of the reasons why we 
really supported, in the BBRA, a number of the changes that 
would allow rural providers to have either better reimbursement 
or a less drastic change in their reimbursement in some cases.
    So it is an area, as I said in my testimony, where we want 
to continue to focus. We have two senior people at HCFA, 
executives, Tom Hoyer in the central office of HCFA and Linda 
Ruiz in the Seattle Regional Office, who are contacts, our 
rural outreach executives, who we tasked with meeting both with 
rural providers and also gathering the data and analyzing it 
for us across the board so we can see what is happening.
    Thank you. Thank you, Mr. Chairman.
    Mr. Bartlett [presiding]. Thank you.
    We will now turn to Ms. Christian-Christensen.
    Ms. Christian-Christensen. Thank you, Mr. Chairman.
    I want to thank the witnesses for being here this morning 
and particularly for the recommendations that you have offered 
so far as to how to address this issue.
    Having been a family physician in the Virgin Islands, I 
feel like I have been beat up by HCFA almost all my life. I am 
particularly interested in the testimony and the responses to 
the questions that have been made so far.
    We closed our home health care agency, as you said. I have 
looked at hospice when I was a practicing physician and because 
of issues like the kind of staffing that was required--you 
cannot be temporary--we do not have a hospice. Our skilled 
nursing facility is struggling, struggling. And I am not even 
sure where to begin.
    Let me ask, I think I heard Mr. Dombi say that all of the 
flexibility that was available to HCFA was not being utilized. 
Do you feel that even though the Balanced Budget Act has put a 
lot of restrictions and caused you to have to implement new 
policies supposedly to reduce fraud, do you think that HCFA, 
Ms. Buto, has exercised all of the possible flexibility with 
regard to rural and small businesses?
    Ms. Buto. We have tried, and I am sure people here will 
tell you that we have not gone far enough. I think certainly in 
the home health prospective payment system, we are really 
trying to make sure that what we are doing here is making sure 
that beneficiaries can get access to good quality services and 
we want to be able to pay agencies more for more complex cases 
and to give them more flexibility to serve those individuals.
    We got a lot of comments on the rule, the regulation that 
we proposed. They were good comments. We have made a number of 
changes to accommodate concerns that were raised. So we are 
hoping--that regulation is very much on schedule--that home 
health agencies will look at it and say you have made some 
appropriate changes to accommodate our situation. I am hoping 
that that will be the case and that that will be the case for 
rural and small home health agencies.
    Ms. Christian-Christensen. The interim payment system is 
probably the issue that my home health agency talks to me most 
about and what you are doing is delaying--well, the interest is 
forgiven for the first year. You are delaying the payments. But 
I just have the sense that it is still going to be an 
inordinate burden on the home health care agencies and don't 
you think we ought to forgive those--wouldn't that be a better 
remedy? I realize that for those----
    Ms. Buto. There is no question that it would be a better 
remedy for those agencies. I cannot give you a definite answer 
on that because the federal debt collection rules require us to 
collect those overpayments and I am one of those people who has 
to sign off and am liable if I do not----
    Ms. Christian-Christensen. When I was a physician I was 
always told it is not the carrier, it is not HCFA, it is the 
Congress that is doing this.
    Ms. Buto. These are federal debt collection rules. I am not 
saying that this is entirely the Congress. These are rules that 
we have to live with, as federal agencies.
    Ms. Christian-Christensen. Would you like to----
    Mr. Dombi. Yes. Within the Federal Debt Collections Act is 
authority for the Health Care Financing Administration to 
compromise any debt that is owed back to the Medicare program 
and they have institutionally chosen not to apply that 
authority to the interim payment system debts, which would seem 
to be the first type of debt that you would, because these are 
cost- reimbursed providers that delivered care to patients who 
happen to have needs that exceeded the level of limits that 
were imposed through the Balanced Budget Act.
    So the compromise authority is there and we would gladly 
take any assistance that we could get from this Committee to 
convince the Health Care Financing Administration to use the 
authority it has to compromise rather than to close a home 
health agency. The option that they are offering right now, is 
pay back money when you have no money coming to you because you 
are still cost-reimbursed, or close.
    And we have seen the actions in bankruptcy courts, as well, 
where the Health Care Financing Administration's position is 
close rather than compromise. We have had bankruptcy courts 
offerto the Health Care Financing Administration the 
opportunity to take $1 million on a $1.5 debt and the Health Care 
Financing Administration said, ``No, close them down.''
    Ms. Christian-Christensen. So there is an administrative 
remedy that you can pursue.
    We did attempt; I think we will try again and we would be 
willing to work with others to do that.
    I guess this question again is for Ms. Buto. The Balanced 
Budget Act of 1997 attempted to reduce Medicare reimbursement 
rates in an effort to save money for Medicare. Has HCFA 
performed any studies or are any studies planned that will 
assess the savings or costs to Medicare by the new PPS?
    Ms. Buto. The upcoming PPS or you mean what has already 
been saved as a result of the changes in the BBA?
    Ms. Christian-Christensen. The one that is in place.
    Ms. Buto. The interim payment system. Oh, yes. I think the 
most recent public document that is probably worth this 
Committee taking a look at is the summary from the Trustee's 
report of the Medicare Trust Fund, which actually looks at what 
is happening.
    You know, the short-term solvency has been extended to 2025 
largely due to changes that have arisen as a result of the 
Balanced Budget Act, which is, of course, one of the intended 
consequences, but I think one of the issues that was a surprise 
to us and is certainly a surprise to providers is that Medicare 
actually spent less in 1999 than it did in 1998 for the first 
time in its history. That was unexpected. Again, a lot of that 
is associated with, if not entirely due to, changes that were 
made in the statute for Medicare payments.
    Home health is one area where the most dramatic change 
occurred, if you look at it, but our actuaries say that 
spending in a lot of sectors, including hospitals, was less 
than expected and we also saw--we did not see changes we have 
seen over time, like an increase in the case mix or the 
complexity of cases that are billed to us in hospitals. We did 
not see any increase. So the actuaries, in consultation with 
other experts, attribute that to the effort of a lot of the 
oversight agencies, like the GAO and the OIG, efforts to look 
at fraud and abuse.
    Ms. Christian-Christensen. Are you looking at also, Miss 
Buto, at ways to address the staffing issue for hospices? Is 
HCFA looking at ways to address that? Because in a rural area 
where you have maybe a physical therapist at a hospital that 
could provide the service at a hospice and you are not allowed 
to use it, there is just no way to provide the hospice service. 
Are you looking at ways to address that, also?
    Ms. Buto. You know, the hospice program is one area where I 
think we are willing to look at a variety of issues around both 
the structure of it and I think some issues were raised around 
the wage index, as well. We are willing to look at that.
    The most important thing that I think will be helpful in 
this evaluation is that Congress required hospices to begin 
submitting cost reports last year. I know that costs have gone 
up in a variety of areas, like drugs, for instance, 
pharmaceuticals, we just do not have the data to show what 
those costs have been.
    We will now have, probably at the end of this year, or the 
beginning of next year, enough data to begin to look at what 
the actual costs are, and that will help us in any reevaluation 
of hospice.
    Ms. Christian-Christensen. I yield back my time, Mr. 
Chairman.
    Mr. Bartlett. Thank you very much.
    Mrs. McCarthy.
    Mrs. McCarthy. Thank you.
    I sit here with fascination because here we are on the 
Small Business and you have a doctor and a nurse, a nurse that 
actually has done a lot of home care over her career. But I 
understand also the issues of the rural areas very, very 
strongly and the hospice and everything else, I can only relate 
to when I did private duty nursing and how hard, and I live in 
a suburban area, how hard--we had a hard time staffing a 
patient. I mean it was really quite difficult. We had a bunch 
of friends work together and we went in as a team. So dealing 
with that issue, just on the rural area, I do not know how you 
do it.
    Obviously we in Congress all had good intentions on the 
Balanced Budget Amendment, and we did, but it is a mess. When 
we talk about rural areas, I talk about suburban areas, I talk 
about my hospitals, my home health care agencies that I have 
worked for, somehow this has to be addressed.
    And I know what we did, putting rules and regulations down 
to you, has been really a mess but my concern is even though we 
are trying to work together and you are certainly implementing 
and work with the small businesses to try to clarify a number 
of things, knowing how government works, it takes too long and 
that is my concern because the bottom line, as we sit here and 
discuss this, is the patient. That is the bottom line and it is 
going to be the patients that are suffering.
    I think as we try to address this. Hopefully we can do 
that, especially for small businesses. I find the majority of 
small businesses that have been in the health care system are 
good people and they are there to take care of those. But my 
concern is, especially the traveling that has to be done in the 
rural areas, we did not take that into account. Unfortunately, 
Congress does not think of an awful lot of things when we write 
those, even though we try to reach out to as many people, but I 
do not think anybody thought it would be the disaster it has 
become. And I am hoping that we, as a Small Business Committee, 
will be able to work with those committees to make this the 
right thing.
    Health care is, in my opinion, in an uproar right now, on 
every level, on every single level. An awful lot of us have 
been trying to come up with answers but unfortunately, there is 
not an answer for everybody.
    What I am hoping out of this Committee hearing is that we 
will be able to facilitate the movement a little bit faster so 
businesses do not go out of business. I sit here and I listen 
to every single one of your testimonies and I have probably 
been in the situation where even I was in a nursing home at one 
time and we had to bring in an outside x-ray.
    Now, of course, they did not have to travel that far but I 
think what people do not understand is how important it is not 
to transport the patient to a hospital, not to take that 
elderly patient out of a nursing home setting, to be able to 
have it there in the surroundings.
    And I do not think any of the things that we have done--
maybe they did not work with nurses; I do not know. We probably 
could have given you an earful on every single level. But we 
have to come up with solutions. We have to save our small 
businesses. We have to make sure there is no fraud and abuse. 
We all agree with that. But who suffers in the end? Our 
business people and our patients.
    And with that, I yield back the balance of my time.
    Mr. Bartlett. Thank you very much.
    I have a question, I guess for Mr. Dombi first and then 
anyone else who would like to comment. At some point as we 
raise the cost of doing business for our small businesses that 
provide health care, at some point they are going to fail. And 
if you are talking about home health care, if they cannot get 
care at home, then they are going to move into a hospital where 
care is very much more expensive. Is this happening?
    Mr. Dombi. At a recent hearing, I believe of the House 
Budget Committee, testimony was presented by hospital 
administrators indicating that they are seeing an increase in 
the number of patients that normally would have been in home 
health care and extended lengths of stay.
    Now traditionally, the Health Care Financing Administration 
tries to monitor these things but they are four or five, maybe 
10 years behind statistically, so they may not see that. But 
certainly those are the reports.
    The other thing which we find quite fascinating is I 
believe for the first time in the history of the Medicare 
program, the expenditures under the skilled nursing facility 
benefit now exceed the expenditures for the home health 
benefit.
    And I believe we have a public policy in this country to 
deinstitutionalize people and keep them integrated into the 
community and when you see a rise in nursing home expenditures, 
it explains somewhat maybe some lengths of stays in hospitals 
but it also explains the effect on home care beneficiaries.
    This year it is projected that there will be three-quarters 
of a million less users of Medicare home health services than 
in 1997 and those patients have to go somewhere because they 
are the most expensive patients. That is why they are having 
access problems.
    I was pleased to hear Ms. Buto say that they have not found 
in their studies any major problems in access because I believe 
just last year the Health Care Financing Administration was 
saying they have not found any problems at all, so at least we 
have made it into the problem category to some extent. But I 
know the Inspector General's office is concerned about access 
issues. I know that the General Accounting Office is. I know 
MedPAC is concerned about it. And I know that Ms. Buto and Tom 
Hoyer and others are also very concerned about access problems 
because they are growing, rather than shrinking.
    Mr. Bartlett. Ms. Buto, who has the responsibility of 
monitoring home health care reimbursement and the effect that 
that has on these providers closing and therefore moving 
patients into other facilities which are very much more 
costly--which would therefore defeat the very thing we started 
out to accomplish, and that was to reduce health care costs?
    Ms. Buto. I do not actually buy the notion that they are 
moving from home health into skilled nursing facilities. Again 
we are, and I would be interested to see if Mr. Dombi has 
information on this but----
    Mr. Bartlett. Are they just dying at home, then? Because if 
they are not getting the care at home, they are going to go 
somewhere for care or they will just die at home.
    Ms. Buto. I guess what I was trying to say earlier is that 
many of them are still getting care at home. One of the changes 
in the Balanced Budget Act was that venipuncture alone, the 
need to have a blood draw, is not now, under the law, and 
probably really should not have been, a reason for getting home 
health care with all the aide services and so on.
    A number of people were affected by that change in the law 
and there is no question about that. However, we did make sure 
that they could get lab services provided to them to have blood 
draws.
    But as to the issue of who is responsible, it is our 
responsibility. We need to know whether there is an impact on 
beneficiaries, who are the number one reason why we are here, 
of any reimbursement change, and that is the reason why I was 
describing earlier that we have the regional offices both 
looking at anecdotes, where they think there is a problem, or 
an individual case or they think some agency might be affected 
adversely, and reporting those to us and in addition, looking 
at other indicators that could tell us what is happening out 
there as a result of the reimbursement changes.
    We have invited the National Rural Health Association and 
they have agreed to help us survey rural providers on a 
systematic basis to get information they have in rural 
communities about the impacts of the Balanced Budget Act and 
NRHA has agreed to work with us on that. They are also helping 
us develop information for beneficiaries in rural areas, so 
that we can find out from beneficiaries if they are having 
problems.
    So it is our responsibility. There is no question about it. 
Other agencies, and the industry itself, also pay very close 
attention and gather information and collect surveys, but it is 
principally our responsibility to make sure that beneficiaries 
get access to care.
    Mr. Bartlett. We have had testimony from several witnesses 
indicating that they are now providing services at less than 
cost, that they do not have the ability to cost-shift because 
they do not have enough private pay patients to cost-shift, and 
they are telling us that they cannot continue this forever, 
that if they do not get some relief, they are going to have to 
shut down.
    Now if they shut down, then the patients that were getting 
care at home are going to be moved into a more costly facility. 
You are saying that that is now not happening.
    Ms. Buto. I am saying I do not know if it is happening.
    Mr. Bartlett. But they are telling us that it is imminent 
that it is going to happen. Can this problem be solved through 
the agency or does this require a congressional action to solve 
this problem?
    Ms. Buto. I guess what I would like to say is that the new 
home health--and I think you are talking about home health 
agencies here--I believe will be a major improvement over the 
situation that they are now operating under. Again it may not 
be perfect; Congress may want to look at making additional 
changes.
    There also is something looming. I think the additional 15 
percent reduction that is in the statute, that was postponed 
until January, I believe. Obviously we are looking at that and 
I am sure you are looking at it, too, to see whether that is 
going to create more difficulty for home health agencies. But 
we ought to take a look and see what the reaction of your 
constituents is to the new system, which we think will be an 
improvement and will make their lives easier.
    Again, if it is not enough, we may want to both consider 
more changes.
    Mr. Bartlett. Mr. Evans.
    Mr. Evans. I just wanted to make one comment that I think 
is a common thread, whether you are talking about home health, 
portable x-ray or hospice. With all the changes that are coming 
down the pike and the changes that you do not know when they 
are going to be enacted or you think they are going to be 
enacted or you plan for them to be enacted, there is no way to 
plan. There is no way to run your business and to plan.
    We have five vehicles that need to be replaced. They have 
an average of 204,000 miles on them. The highest mileage one 
has 350,000; the lowest has 95,000 on it. We cannot plan. We 
cannot plan to change equipment because we do not know what the 
next--we know what is planned from HCFA, for instance, 
consolidated billing they are saying now is January 1 of 2001.
    Will it happen? We do not know. It was supposed to happen 
January 1 of 2000. The common thread is you cannot plan.
    And one other comment I wanted to make as far as where 
these patients are going, I think you hit the nail on the head. 
They are going to the hospitals. And the problem is that when 
these hospitals get them, because of PPS and how it affects the 
SNFs, not necessarily the home health agency but the SNFs 
themselves, these patients are not--the SNFs do not want them. 
The skilled nursing facilities do not want a high chronic or 
acute diseased patient. They cannot afford to under this 
system.
    So you hit the nail on the head. It is a problem. It is a 
big problem.
    Mr. Bartlett. My last comment and question has to do with a 
systemic problem that has been bothering me. Apparently in 
health care, we as a country have given up on what is the usual 
procedure for improving quality and reducing costs, and that is 
competition. In health care, rather than competition, we appear 
to be turning to practices that we have applauded the failure 
of in other countries.
    What we are trying to do, as I see it, in health care in 
containing costs is simply to use a combination of rationing 
and payment at below cost. I talk to a lot of people who run 
nursing homes and the Medicaid payments are less than their 
costs. I talk to people in hospitals. The Medicare payments are 
less than their cost and the only way that they can stay in 
business is to cost-shift.
    Now when they cost shift, I as a taxpayer am still 
ultimately paying the bill and it is a false economy to believe 
that by cost-shifting, we can reduce the cost of health care 
because providers cannot remain in business being reimbursed at 
less than the cost of doing business. They tried that for 75 
years in the Soviet Union and it did not work.
    And I am wondering how we got off track and how we 
concluded that we could not provide better health care at less 
cost with competition and why we had to turn to the practices 
that have failed other countries; that is, the practices of 
rationing and reimbursement below cost. Where did we go wrong 
and how do we get back on track?
    Mr. Evans. If I could make one comment, I also own a 
cardiopulmonary stress test that we go into doctor's offices 
and perform and just to add onto what you said, Mr. Bartlett, 
when we go a physician's office and a physician's office is 
owned by a hospital, that hospital does not want us around. 
They do not want, even if it is cost-saving, they do not want 
us there.
    It seems to me like everybody, and I do not care whether it 
is HCFA or a hospital or whoever, everybody is very protective 
of their own territory.
    I echo what you are saying. I agree with what you are 
saying.
    Ms. Buto. Can I comment on that, as well? Medicare has had 
a very hard time using competition. We were given authority in 
the Balanced Budget Act to competitively bid durable medical 
equipment services and we also were given authority to do--and 
these are both demonstrations; they were not across the 
country--limited demonstrations. The other was competitively 
bid our contribution to an HMO, or HMOs in an area.
    The HMO provision was set up in such a way that we had 
three advisory committees advising us on the design and the 
method for doing the competition. We took their advice. The 
advisory committee was chaired by an executive at GM and 
included people like Mr. Reischaurer, former CBO director, and 
Chip Kahn, who used to be Ways and Means staff director--a 
number of people who know a lot about health care. That 
committee has now essentially had its authority at least frozen 
for the moment by Congress for a couple of years. We cannot 
start the demonstration because of concerns coming from that 
local area.
    The other demonstration was more successful. We were sued 
by the industry and prevailed, ultimately, in the lawsuit. But 
we had a full and open competition. We were able to meet with 
beneficiaries. We continue to meet with beneficiaries. They are 
very satisfied. And we were able to get a lower price but we 
had to actually go through court to sustain the ability to do a 
pilot project to do competition.
    So, I think there is a legitimate concern on the part of 
people in the health care community when Medicare does 
competition. We are the 900-pound gorilla and I understand 
that. I think we have to do it carefully, openly. It ought to 
be fully visible to the public. But we have found it extremely 
hard because of local concerns and concerns about what will 
happen to whole groups of providers if we engage in 
competition.
    But I agree with you. It is something we feel very strongly 
we ought to be trying more of in Medicare.
    Mr. Bartlett. I appreciate that there are problems and you 
identified those problems, but the very fact that we recognize 
that it is very difficult to provide competition in health 
care, I think, speaks to a fundamental problem of how did we 
get here when nowhere else in our society do we have problems 
providing a better product or a better service with better 
efficiency and lower cost through competition and we are now 
admitting that we cannot do that in health care.
    I am just wondering, where did we go stray and how do we 
get back on track because I just have to believe the delivery 
of health care has to be amenable to the same forces that 
operate everywhere else in our society, and that is that 
competition always does two things. It makes the service or 
product better and it makes it cheaper. And we have not found 
that true in health care and I just think that rather than 
nibbling at the margins of the problem, we need to get back and 
take a broad look at how we got to where we are, which is not 
where we ought to be. We should not be rationing and we are 
rationing. And we should not be forcing providers to provide 
health care at less than cost because that simply results in 
cost-shifting and there is zero economy in cost-shifting 
because we, as the taxpayers, end up paying the costs anyhow 
because we are not going to have people sitting on the curb 
dying.
    So I just hope that in our desire to fix the system that we 
now have, which is clearly broken, that we spend some time in 
looking at how we got here and what do we need to do to get 
back to where we have true competition, where we will have 
improved quality and lesser costs because that works everywhere 
else in our society.
    And I just hate to see us trying to do in our country what 
failed in the Soviet Union for 75 years, and that is a 
centrally controlled system. It did not work there, it is not 
working here and it is not going to work for the future.
    So we would solicit your help in helping us to understand 
where we went wrong, because I think that here, as in most 
cases when we have problems in our society, they began where I 
am sitting, not where you are sitting--where we went wrong so 
that we can try to get back to where we ought to be.
    Well, I want to thank you all very much for a very good 
hearing and unless there are additional comments from the 
panel, we will adjourn the Committee. Thank you very much.
    [Whereupon, at 12:15 p.m., the Committee was adjourned.]
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