[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
                 ACCESS TO HEALTH CARE IN RURAL AMERICA

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON RURAL
                ENTERPRISES, AGRICULTURE, AND TECHNOLOGY

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                             WASHINGTON, DC

                               __________

                             MARCH 19, 2002

                               __________

                           Serial No. 107-48






         Printed for the use of the Committee on Small Business

                             ____________

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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio                   DONNA M. CHRISTENSEN, Virgin 
PATRICK J. TOOMEY, Pennsylvania          Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota          TOM UDALL, New Mexico
MICHAEL PENCE, Indiana               STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania           BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                      Doug Thomas, Staff Director
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director
                                 ------                                

     Subcommittee on Rural Enterprises, Agriculture, and Technology

                   JOHN THUNE, South Dakota, Chairman
ROSCOE BARTLETT, Maryland            TOM UDALL, New Mexico
FELIX GRUCCI, New York               DONNA M. CHRISTENSEN, Virgin 
MIKE PENCE, Indiana                      Islands
BILL SHUSTER, Pennsylvania           DAVID D. PHELPS, Illinois
                                     BRAD CARSON, Oklahoma
                     Brad Close, Professional Staff



                            C O N T E N T S

                              ----------                                

                                                                   Page
Hearing held on March 19, 2002...................................     1

                               Witnesses

Hatch, Ron, Owner, Hatch Furniture...............................     3
DeVany, Mary, Avera McKennan TeleHealth Network..................     5
Nelson, Wayne, President, Communicating for Agriculture..........     7
Hill, Edward, Chair-Elect, Board of Trustees, American Medical 
  Association....................................................     9

                                Appendix

Opening statements:
    Thune, Hon. John.............................................    19
Prepared statements:
    Hatch, Ron...................................................    19
    DeVany, Mary.................................................    21
    Nelson, Wayne................................................    26
    Hill, Edward.................................................    28


                 ACCESS TO HEALTH CARE IN RURAL AMERICA

                        TUESDAY, MARCH 19, 2002

                House of Representatives,  
         Subcommittee on Rural Enterprises,
                       Agriculture, and Technology,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:20 p.m., in 
room 2360, Rayburn House Office Building, Hon. John R. Thune 
[chairman of the Subcommittee] presiding.
    Present: Representatives Thune and Udall.
    Chairman Thune. This hearing will come to order.
    Good afternoon. I want to welcome you to the hearing of the 
Subcommittee on Rural Enterprises, Agriculture and Technology. 
I want to thank particularly all the witnesses who have 
traveled over long distances to be here with us today.
    Today we are going to be examining the issue of health care 
in rural America. Obtaining access to adequate and affordable 
health care is a problem for small business owners throughout 
the country, but it can be particularly difficult in rural 
areas. As Congress continues to address the health care 
problems our country faces, we must not lose sight of the 43 
million uninsured Americans. This is a real crisis. Many people 
don't realize that over 60 percent of our uninsured population 
consists of small business owners, workers and family members. 
By addressing the access problems faced by millions of workers, 
Congress can greatly reduce the number of uninsured.
    One of the reasons small businesses cannot afford health 
coverage for their employees is that they are unable to achieve 
the economies of scale and purchasing power of larger 
corporations and unions. For example, on average, a worker in a 
firm with less than 150 employees pays 18 percent more for 
health insurance than a worker in a firm with 200 or more 
employees. In addition, self-employed individuals can only 
deduct 70 percent of their health insurance premiums from their 
taxes, while their corporate counterparts can deduct 100 
percent of the cost of health insurance premiums for their 
employees. Small businesses suffer from unequal treatment. What 
they want most is a level playing field when it comes to health 
care.
    Large corporations use the purchasing power of thousands of 
employees to offer affordable health insurance to their 
workers. Small business owners, on the other hand, have to find 
their insurance on an individual basis; and in rural areas 
insurers have been leaving the small group insurance market, 
making it difficult to find affordable health coverage.
    I was very heartened to see President Bush today issue his 
plan for helping small business prosper in our economy. The 
President is aware of the health care access and affordability 
problems facing small businesses, and his plan includes 
concrete steps to increase health security for employees of 
small businesses. His agenda calls for Association Health Plans 
to be available for associations that want to provide them for 
their members, and it calls for a permanent extension of 
Medical Savings Accounts, including a significant reduction in 
the required deductible for these health accounts.
    Congress needs to ensure there are many different health 
insurance options for small business owners to utilize. We need 
to help our businesses attract and keep employees, and nothing 
helps more than the ability to provide health insurance. For 
rural States, the ability of small business owners to obtain 
and provide affordable health insurance for their employees is 
vital to our efforts to attract new jobs and prevent population 
loss.
    I look forward to hearing testimony from our witnesses 
today, and I want to thank you all for participating in this 
hearing.
    I would now yield to the gentleman from New Mexico, Mr. 
Udall, for an opening statement.
    Mr. Udall. Thank you, Chairman Thune. I appreciate all of 
you being here today on this hearing regarding access to health 
care in rural areas.
    In the past 100 years, medicine has advanced dramatically. 
We have experienced the eradication of life-threatening 
diseases, treatment of once debilitating ailments and 
improvement of our quality of life. Today we are living longer, 
healthier and more productive lives.
    Just one of our recent technological advancements is 
telemedicine. Through telemedicine physicians can diagnose and 
treat patients with hundreds of miles distance between the 
physician and the patient. It is encouraging, it is exciting 
and exhilarating to live in a time of such innovation. However, 
despite these advancements, the rural areas of America have 
managed to advance incrementally, slow, if at all.
    Rural America faces two major barriers: access to health 
care and access to health insurance. Many of the constituents I 
represent in New Mexico and the Chairman I know represents in 
South Dakota live in rural areas. They experience firsthand the 
difficulties of living without health care due to limited rural 
health care centers or lack of health insurance. In most cases, 
the only time they receive medical attention is in emergency 
situations. The lack of and limited services provided in rural 
areas have resulted in an increased incident rate of 
preventable chronic illnesses.
    The recruitment and retention of high-quality physicians is 
challenging. Medicare reimbursement rates in rural areas are 
not sufficient. What types of incentives are available for 
physicians who choose to practice in rural communities? 
Compared with their urban colleagues, rural physicians work 
longer hours and are paid less.
    Rural health care clinics are pivotal. Clinics with a solid 
public health infrastructure provide high-quality, culturally 
sensitive and cost-effective services. Nearly 40,000 Americans 
are without health insurance, with 20 percent of them living in 
rural areas. Half of those--that must be 40 million, excuse 
me--40 million are living without health insurance, with 20 
percent of them living in rural areas. Half of those without 
health insurance are hard-working individuals with full-time 
jobs.
    Large businesses and labor unions have the benefit of 
exercising their purchasing power to negotiate with health 
insurance companies for better rates and terms. The rising cost 
of health insurance premiums has made it difficult for small 
businesses to purchase health insurance for their employees, 
even though this is the best investment an employer can make in 
their employees. It is disheartening to know that, as premiums 
increase, employers are left with two choices--reduce the 
number of employees with health insurance or keep all employees 
and eliminate their health insurance benefits.
    Making health insurance available to small business 
employees is a challenge, but it is feasible. Association 
Health Plans, managed care organizations, tax credits and 
deductions and Medical Savings Accounts propose to solve these 
problems.
    Small businesses must pool resources and work 
collaboratively to provide their employees and their families 
with much-needed and much-deserved health insurance benefits. 
Furthermore, successful rural health centers should not be 
curtailed or punished for providing health services available 
to hard-working, vulnerable and isolated communities. Instead, 
they should be commended for their altruistic efforts.
    Again, thank you, Mr. Chairman; and I look forward to 
hearing the testimony from today's panel.
    Chairman Thune. Thank you.
    Before we begin receiving testimony from the witnesses, I 
want to remind each of the witnesses to keep their oral 
testimony to 5 minutes. In front of you on the table is a box, 
and that box will light up yellow when have you 1 minute 
remaining. When 5 minutes expires, the red light will appear.
    There is no trap-door that drops or anything, but once the 
red light is on we would ask that you, if you could, begin 
wrapping up your testimony as soon as you are comfortable.
    We want to begin the Subcommittee hearing with Mr. Ron 
Hatch, owner of Hatch Furniture Stores. Mr. Hatch has stores 
located in Yankton, South Dakota, and in Sioux City, Iowa. So 
please proceed, Ron.

STATEMENT OF RON HATCH, OWNER, HATCH FURNITURE, YANKTON, SOUTH 
                             DAKOTA

    Mr. Hatch. Thank you, Mr. Chairman.
    On behalf of NFIB, which I am a proud member of, and our 
600,000 other members I thank you for the opportunity to come 
and talk to your Committee.
    I am Ron Hatch, fourth generation. My great-grandfather 
started our business in Wakonda, South Dakota, in 1903. My son 
is presently in the business, and he is fifth generation.
    I entered the business in 1974. At that time, we had a 
health care program which my mother and father had started for 
our employees. As far as a group rate, the first several years 
it was not a very difficult thing to get a rate, get a portable 
health care insurance, but in the last few years it has gotten 
really, really tough for us, particularly last year.
    We were with a carrier that determined to completely pull 
out of their program in South Dakota. I don't know if that was 
because of mandates or because of lack of population, but it 
was something that caused them to completely--I have got a lot 
more than 5 minutes, okay--but they pulled out of the State, 
and we were forced to essentially get new bids for a new 
carrier, which gave us a relatively short time to rebid the 
program.
    We received four bids, all of them approximately the same, 
all of them approximately 50 percent higher than the rates we 
had. For example, my rates personally went from $390 a month to 
$695 a month--almost $400 to almost $700--and that included 
only my wife and myself on the new policy, where before we had 
wife and dependents on the old policy. So it would have been--I 
don't remember how much more, but even considerably more if we 
would have left our son on the program. We were forced to get 
separate coverage for our 16-year-old son.
    As far as Hatch Furniture's group, we have 28 employees 
that would be eligible. Presently, we have only nine of them 
covered under our particular program, mainly because our 
program is too expensive. We pay $125 of the premium and the 
employees pay the bulk. Now that is fine for the younger 
employees. Most of them are on it. But the older employees such 
as myself you know are not staying on our group program; and I 
am afraid that, you know, if we get any more increases we are 
going to have even more and more people drop off of it. Some 
have been able to obtain outside coverage if they are healthy, 
but the ones that aren't healthy, it presents a real problem.
    It also has an adverse effect on Hatch Furniture as far as 
a viable company. It isn't just being a good employee and 
trained to provide health care coverage for our employees. I 
wish we could do more, but our profitability doesn't allow us. 
It has been a really, unfortunately, tough couple of years 
bottom-line-wise; and so I wish I could do more. It hurts that 
I can't.
    Another issue that comes up is we have lost our--have been 
unable to hire good employees because our health care program 
is not competitive with a lot of our bigger competitors or 
other industries.
    South Dakota is not a problem for Yankton. We are fortunate 
we have good facilities in Yankton and Sioux City, but it is a 
problem for a lot of other people in our State.
    One of the things that we are running into, though, is the 
PPO provider list that our different carriers have--for 
example, we have Avera in Yankton, Sacred Heart Hospital, 
Avera, and we just received notification that the carrier that 
we have our son in is probably not going to renew the PPO list 
with Avera. So, if that is the case, then we are going to be 
forced to go down the road 60 or 90 miles to--and I hope they 
get that worked out. It isn't a final thing. But it is an issue 
that--kind of an ongoing matter that is going to face us.
    One of the things that hurts us is a modification problem 
that, without the HP, we have groups that--we have group 
insurance but we are still rated--if we have two or three 
unhealthy employees, like diabetic, for example, we are not 
able to get a good rate, where the HP would, I am sure, resolve 
that for us.
    Thank you.
    Chairman Thune. Thank you, Ron.
    [Mr. Hatch's statement may be found in appendix.]
    Chairman Thune. Our next witness is Ms. Mary DeVany from 
Sioux Falls, South Dakota. Ms. DeVany is the manager at 
TeleHealth Services at Avera McKennan TeleHealth Network. I 
have seen firsthand some of the remarkable things that are 
being done in my State of South Dakota with telehealth and its 
application in rural areas. It is very exciting. I think Mary 
is going to share some of that with us. So please proceed.

 STATEMENT OF MARY DeVANY, AVERA MCKENNAN TELEHEALTH NETWORK, 
                   SIOUX FALLS, SOUTH DAKOTA

    Ms. DeVany. Thank you for this opportunity today; and a 
special thank you to you, Mr. Thune, for your ongoing support 
of telehealth activities.
    The Avera McKennan TeleHealth Network was established in 
1994. Our network primarily uses two-way interactive 
videoconferencing throughout. We also have a video bridge that 
allows us to connect multiple sites simultaneously.
    Our network averages about 400 clinical telemedicine 
consults annually in various specialty areas. However, 
telehealth is more than just telemedicine. The system is also 
used for distance education activities, whether it is for 
clinical education such as tumor conferences and various grand 
rounds topics, or staff and community education, as well as for 
various meetings.
    As you are aware, obviously, South Dakota is very rural, 
with only 10 communities with a population over 10,000. From a 
health care standpoint, specialist physicians are concentrated 
on the eastern and western edges of our State, with about 350 
miles between them. The number ofmiles for our own network 
sites runs anywhere from 45 to 170 miles one way.
    The availability of telehealth helps to reduce the health 
care penalty for choosing life in a small town. Citizens should 
not be held at a disadvantage simply because they live in a 
rural area, especially if technology can help resolve that 
issue. Access to health care leads to improved quality of life 
for individuals in rural communities and allows them, and 
encourages them, to remain.
    However, many communities are simply trying to keep their 
hospital open and to continue to provide those services that 
are currently available. The closing of a local hospital or 
health care facility signals a major crisis for a rural 
community, and every effort should be made to maintain its 
viability. A facility can be strengthened by making additional 
or enhanced services available. This technology makes specialty 
services more accessible to our rural residents.
    I have included a specific example in my written testimony 
of how one facility was able to expand their service offerings 
via telehealth.
    Physician isolation is an issue with which all rural 
communities are faced. However, physicians are not the only 
ones affected. All levels of health care providers experience 
this difficulty. The availability of telehealth technology and 
distance learning opportunities allow for greater peer-to-peer 
interactions. It also helps to improve the quality of services 
being provided at the rural facility by making current 
information available to staff.
    As we all know, health care dollars are very tight. But 
staff still needs this training and educational opportunities. 
Video technology allows for a degree of cost savings over the 
year by allowing employees to attend an educational event from 
their home facility and reducing the need for travel.
    Again, I have included an example of cost savings in my 
written testimony.
    Probably the most far-reaching contribution made by 
telehealth technology is increased support for ``main street.'' 
Allowing patients to receive specialty health care from their 
home facility helps keep additional dollars at home. The 
additional services like lab work, x-rays, or prescriptions are 
also done by local providers. Additionally, the peripheral 
stops that can go along with trips to Sioux Falls, like gas, 
groceries, a stop at Wal-Mart, are reduced and more of these 
dollars remain in the community as well, not to mention the 
additional hotel and restaurants expenses. Also, time away from 
one's job is greatly reduced, an hour or so, as opposed to a 
day or more.
    Not only does this technology help to provide increased 
opportunities for health care services but also improves the 
perception of quality care available from a hometown provider 
and a health care facility. While it may not directly affect or 
be directly affected by the proposed Association Health Plans 
or the Medical Savings Accounts, telemedicine can help to keep 
the overall cost of Medicare down by providing care at a lower 
cost facility, helping with early diagnosis and care, and 
keeping more of those health care dollars at home.
    There are a couple specific areas where your support is 
needed.
    First is the area of reimbursement. Over the years, 
telemedicine has developed a successful track record and is a 
proven tool. In many respects it has been proven to be as good 
as a face-to-face consult. However, you wouldn't know that by 
looking at who and what is being paid. Your support is needed 
to expand the current level of reimbursement and to encourage 
Medicare and insurance companies to provide full coverage. The 
current Medicare reimbursement structure needs to expand the 
eligible facilities and providers as well as the allowable CPT 
codes.
    Second, over the past months there appears to have been a 
somewhat arbitrary decision to move the Office for the 
Advancement of Telehealth, known as OAT, to be housed within 
the HIV/AIDS Bureau. The Nation's telehealth community is 
greatly concerned that this change signals a shift in the level 
of support for this program and that the awareness of 
telehealth will diminish from the lack of visibility. OAT has 
been a valuable resource for new and seasoned programs alike, 
and this shift is a great concern. We would rather that this--
we would like to see the program reinstated into its former 
location within HRSA and rather than cutting funding for this 
program these activities should be expanded.
    In closing, thank you for the opportunity again to share 
this information. In my written comments you will see several 
success stories that can help bring the understanding of the 
benefits of telehealth to a level we can all appreciate. Thank 
you.
    Chairman Thune. Thank you, Mary.
    I would also note, too, that all of your testimony will be 
submitted in its entirety for the record. I appreciate the 
additional information that you are furnishing regarding some 
of the success stories in that area.
    [Ms. DeVany's statement may be found in appendix.]
    Chairman Thune. Next, the Subcommittee will hear from Wayne 
Nelson from Winner, South Dakota. Mr. Nelson is president of 
the group Communicating for Agriculture and is self-employed 
and I believe represents a number of folks who would have a 
very keen interest in making health care certainly more 
accessible and also more affordable in rural areas. So please 
proceed.

    STATEMENT OF WAYNE NELSON, PRESIDENT, COMMUNICATING FOR 
               AGRICULTURE, WINNER, SOUTH DAKOTA

    Mr. Nelson. Thank you, Mr. Chairman, Congressman Udall. It 
is a pleasure to testify today before your Committee.
    We feel that there are several areas that are key in trying 
to make sure that health care remains available in rural areas 
and also remains affordable.
    One key point would be that Congress must maintain adequate 
funding for key infrastructure programs that help maintain the 
quality of rural health care services, particularly the 
National Health Services Corps and other programs that help 
bring and keep doctors and nurses and health care providers to 
rural areas to practice medicine and for telemedicine programs 
that support our rural providers and keep them linked to the 
latest and best knowledge available for quality care.
    Another area that we are very concerned about is cuts and 
underfunding for reimbursement of Medicaid and Medicare for 
rural health care providers and their residual impact. We see a 
cost shifting that is happening from the underfunding of these 
government programs that--cost shifting by providers, and it 
results in higher costs for private insurance and higher 
premiums for consumers.
    One of the most positive developments we have seen in 
recent months is passage by the House of Representatives of the 
President's proposal for refundable tax credits to help reduce 
the number of uninsured in this country. We feel that this is 
one of the most important issues that affects people in rural 
America, and that is the cost. A lot of the 40 million 
uninsured are uninsured because of the cost. We feel that tax 
credits are a good way to address that.
    Getting more people adequately insured is the fundamental 
foundation that we have to pursue if we are to have adequate 
access to health care in rural America. The rising cost of 
health insurance is putting a strain on small businesses and 
particularly for individuals like our farmers and small 
business members.
    Proposals for the refundable tax credit for health 
insurance premiums we feel tackles this issue head on. By 
making the tax credits refundable and advanceable, low-income 
people who don't normally pay much or any taxes would still 
benefit from the program. By some estimates, as many as 6 
million more people would become insured, reducing that 40 
million uninsured if $1,000 per individual or up to $3,000 per 
family refundable tax credit would be offered. We clearly think 
this will make a big difference and help more people in rural 
America to become insured.
    As you know, several bipartisan bills have been introduced 
in both the House and Senate that call for refundable tax 
credits. We do commend the House for passing health care tax 
credit bipartisan legislation in one of their stimulus 
packages. We were unable to get the Senate to approve the same 
proposal. So we think that could go a long way towards helping 
the 40 million uninsured.
    Another problem the Chairman mentioned is tax equity for 
health insurance premiums. It seems patently unfair that large 
corporations can deduct 100 percent in the year of 2002 while 
self-employed can only deduct 70 percent.
    Finally we will reach 100 percent in the year 2003, but the 
poor individual like the single mom that might be working two 
jobs, maybe part time in a McDonalds, part time at a store 
downtown, neither offers a program for health insurance, her 
deduction today is zero because she is not self-employed, but 
she is an individual that is paying for her own insurance. So 
we have expanded that to all individuals, not just to the self-
employed.
    Another part that we think would be very, very helpful 
would be to encourage more States to offer high-risk pools or 
health safety nets. CA has long believed in the right for 
everyone to have access to health insurance protection, 
regardless of their health, as long as they are willing to pay 
for it. The most effective way of providing this access 
guarantee is through high-risk health insurance pools. Twenty-
nine States now have those pools, and we would like to see some 
Federal legislation that would help the other 21 States to 
develop pools and also to help with the assessment process to 
help pay for the pools for these other 21 States as well as the 
existing States.
    We believe that the risk pool for the medical uninsurable 
is part of the health safety net that really supports the idea 
of having the availability of health insurance to everyone, no 
matter what their medical condition might be.
    Another program that we have long supported and we are very 
happy to see it at least extended for 1 year are Medical 
Savings Accounts that were just signed into law this weekend by 
President Bush in the stimulus package. But that doesn't go far 
enough. They need to be permanent, and there need to be changes 
made in MSAs that would help to encourage more people to 
participate in the MSA programs.
    Thank you very much for the opportunity to address you 
today, and I would be happy to try to answer any questions at 
the proper time.
    Chairman Thune. Thanks, Wayne.
    [Mr. Nelson's statement may be found in appendix.]
    Chairman Thune. Our last witness this afternoon is Dr. 
Edward Hill from Tupelo, Mississippi. Dr. Hill is the Chair-
Elect to the Board of Trustees for the American Medical 
Association. Dr. Hill, it is nice to have you today and I look 
forward to hearing from you.

   STATEMENT OF J. EDWARD HILL, M.D., CHAIR-ELECT, BOARD OF 
  TRUSTEES, AMERICAN MEDICAL ASSOCIATION, TUPELO, MISSISSIPPI

    Dr. Hill. Good afternoon, I am Edward Hill. I am Chair-
Elect of the American Medical Association Board of Trustees and 
a family doctor in Mississippi.
    After a Navy medical career I settled in a town of 3,000 
people in central Mississippi, what is called the Mississippi 
Delta, in 1968, which was the early years of Medicare and 
Medicaid. This was a very high-need environment, with no 
physicians, no hospitals, no health care to speak of. In fact, 
the health care condition was--I could only describe as Third 
Worldish. I remained in that environment for 27 years before 
moving to my present position, which is director of the family 
medicine residency teaching program in the largest nonurban 
hospital in America in Tupelo, Mississippi.
    So my knowledge of rural health access issues stems not 
from an interest in health policy but actually from long-time 
experience in underserved rural America.
    Today I would like to touch on three components to improve 
access to health care in rural America: retention, recruitment 
and reform.
    First, retention. On January 1, Medicare payments to 
physicians and nonphysician practitioners were cut by 5.4 
percent; and CMS predicts that these cuts will continue to 
roughly 20 percent over the next 4 years and 30 percent if you 
count inflation. These cuts are the result of a flawed payment 
update formula, and we are extremely concerned about the impact 
of these cuts on patient access and the retention of 
physicians, especially in rural areas.
    Two-thirds of all physicians offices are small businesses. 
If a business continues to lose revenue and operates at a loss, 
the business cannot be sustained. This means that physicians 
will be forced to make very difficult choices such as 
discontinuing seeing new Medicare patients, laying off staff, 
relocating to an area with a smaller Medicare patient 
population, or leaving the practice of medicine. These are not 
choices that doctors want to make.
    In each case, the Nation's patients lose. For example, if 
one or more physicians in a rural area retires early because of 
the Medicare cuts, this could seriously hurt access to all 
patients.
    The Medicare Payment Advisory Commission, or MedPAC, has 
recommended a new framework for Medicare physician updates. We 
support the MedPAC general framework, and we urge this 
Subcommittee to support legislation that would immediately halt 
the 5.4 percent Medicare payment cut, repeal the sustainable 
growth rate system, and replace the fraud Medicare payment 
update formula with a new system that appropriately reflects 
increases in practiced costs. So we ask this Subcommittee to 
support H.R. 3351 and H.R. 3882.
    Second, I would like to address how we can recruit more 
physicians and encourage them to establish their practices in 
rural America. As you have heard, one program that has worked 
very well is the National Health Service Corps. In 1970, 
Congress created the Corps to encourage physicians and other 
health care providers to practice in underserved communities. 
Through scholarships and loan programs, the Corps provides 
incentives for physicians to establish their practices in 
underserved areas, including rural areas.
    Critical for the Corps to accomplish this goal is its 
adequate funding. The Corps' authorization, though, has 
expired. The AMA thinks that it is imperative that Congress 
reauthorize this program.
    The third component of access in rural America is reforming 
our insurance system. Rural America suffers disproportionately 
from a lack of health insurance coverage. In fact, 21 percent 
of rural residents are uninsured. Nationwide, more than 39 
million last year had no health insurance coverage.
    The AMA has a proposal to reform the health care system in 
America to address this problem, which is summarized in this 
booklet which you all have a copy of. We propose that the 
country's health system be transposed from an employer-centered 
system to an employee-centered system. To accomplish that, a 
few changes in the current system would be needed.
    First, we need refundable travel credits for the purchase 
of health insurance. The current tax exclusion system benefits 
only those taxpayers who obtain their health insurance through 
their employer. That leaves out those who are unemployed, those 
that are self-employed and those who do not receive coverage 
through their employer.
    We propose a tax credit system. Under our proposal, 
employer contributions to health insurance would be reported as 
taxable income and individuals would take a tax credit on the 
portion which they spend on health insurance. These tax credits 
would have to be large enough to ensure that health insurance 
is affordable. They should also be advanceable, refundable, and 
inversely related to income.
    The second part of our proposal would require creating new 
opportunities for alternative health insurance markets. This 
could be accomplished in the rural areas through the formation 
of purchasing cooperatives.
    The AMA proposal would be fiscally responsible, promote 
greater fairness in the Tax Code, increase employee choice and 
expand health coverage throughout the country.
    So, thank you, Mr. Chairman and the entire Committee, for 
asking us to testify this afternoon.
    Chairman Thune. Thank you, Dr. Hill.
    [Dr. Hill's statement may be found in appendix.]
    Chairman Thune. I appreciate all your testimony.
    I would add, as a matter of experience in having been out 
traveling across my State of South Dakota, I have had some 
meetings in the last few days in small communities that 
currently have hospitals and as well as nursing homes and 
assisted-living centers; and the issues, in my opinion, that 
impact rural areas are particularly acute in the area of health 
care. We are seeing, I think, in terms of an ability to 
maintain a population base to attract new jobs through economic 
development, that health care is a critical component when it 
comes to quality of life.
    In drawing on my own experience, I grew up in a little town 
of about 650 people. I think it was back in the 1960s that we 
got a Federal grant to build a brand new hospital. At the time, 
I think it was $300,000, which at that time built a pretty nice 
hospital. But it was open for 1 year. We had a doctor for 1 
year, and the doctor left, and we couldn't get another doctor 
to that hospital. So for the next 35 years that place went 
unused, a beautiful facility which at the time had very modern 
equipment and technology and everything else. So it is sort of 
typical I think of the plight of America in rural areas.
    As you look now--and my folks still live in that community. 
They are 82 and 80, and the closest hospital is Pierre, which 
is 60 miles away. So you find increasingly that distances and 
geography works against us in rural areas. I know the gentleman 
from New Mexico faces a set of similar circumstances. Trying to 
figure out how to make health care accessible and affordable to 
more people in country is the challenge.
    What I would like to do is focus a little bit, too, on some 
of the suggestions that have been made. I would ask the 
question of Mr. Hatch, because you raised the question about 
the increase in insurance premiums. Did you get any explanation 
as to why those premiums increased by that amount?
    Mr. Hatch. It was mostly our experience modifier. The 
quotes that we would get from the individual carriers were an 
estimate, and then we would spend a lot of time----
    First of all, when we change policies it is always a very 
time-consuming process because we go through the underwriting--
you know, all 28 of the employees have to fill out the 
application, might take an hour, hour-and-a-half, and--you 
know, if we are getting four bids. But then what happens is we 
had an employee that had migraines that was on a continuing 
prescription, an employee that has diabetes, an ex-employee 
that was still on COBRA that had a heart problem. So, 
basically, that was why we had and continue to have the 
problem, is because just a few people in our small group 
underwrite us basically out of business. And I can't just fire 
those people. I mean, it isn't ethical.
    Chairman Thune. Do you think if you had 2,800 employees as 
opposed to 28 that would you have the same trouble?
    Mr. Hatch. I would sure think so, yes.
    Chairman Thune. Okay. Have you lost employees--I mean, have 
you had people, because there is the loss of health care, who 
have just said, I have got to find a different job?
    Mr. Hatch. That was--a few years ago, we had an individual 
that left. And most of it now has been a few employees that we 
have made offers of employment, but--we felt they were 
qualified people, but when they looked--when someone 
interviews, they say, do you have a health plan? We say, yeah, 
we have a health plan. But then they look into it and find out 
what it really costs as far as their participation. It presents 
a problem for us as far as recruiting.
    So it has been more of a problem of inability to hire 
someone, particularly if they already have a dependent, for 
example, that needs extensive health care.
    Chairman Thune. You mentioned, as a member of NFIB, if 
Association Health Plans were made available and an 
organization like NFIB chose to create one, do you see that as 
a solution that would be helpful?
    Mr. Hatch. I certainly do. We presently have--like with the 
South Dakota Retailer Association, we have supposedly a group 
there, but it still goes through the individual underwriting. 
So it really isn't--even though we may have a lower base rate 
through an association, it still doesn't help you if you have a 
few people with health problems. So I think this would really 
rectify that problem.
    Chairman Thune. Does the--Mr. Nelson, you suggested that 
one of the things you talked about, and I think Mr. Hill as 
well, is tax credits. That is something that we kicked around 
here. In terms of a health care model, the one that we have 
today is a third-party-pay, employer-based system. If you went 
to some sort of a tax credit, that would be particularly 
helpful to those who don't currently have insurance and also 
might begin creating some competition in the existing health 
care market.
    I guess I would throw this question out to whomever would 
like to answer it, but the increasing costs that we are seeing, 
particularly among small businesses, to whom do you attribute 
that? Is that a provider issue? Is that an insurer issue? Is it 
a customer issue?
    I talked with doctors who say that the expectation levels 
are so high now that when someone comes in they are demanding 
the treatments, the modern technologies, the breakthroughs that 
we have seen in health that exist out there; and it tends to 
kind of build on itself. But it seems to me that there isn't a 
lot of incentive to control costs. Because those costs are 
always passed on. Ultimately, the consumer is the one who pays 
the cost.
    But if the consumer, the individual, had more control and 
you moved away from the employer base, it would seem to me that 
that there would be someone in that equation somewhere who 
would have an incentive to control costs.
    Mr. Nelson. No question, I think that would help. I think 
it is a combination of severalthings. It is not just one single 
thing that make health insurance costs go up so much or health care 
costs in general.
    But certainly empowering consumers to become better 
educated to understand their own health care and understand 
what it costs--you know, simply going to an employer group and 
showing people that have their insurance--not so much in small 
business but in large businesses like the 2,800 you mentioned, 
their insurance is likely 100 percent paid for by their 
employer. They don't even know what it costs. They don't know 
what it costs, and they have a $10 co-pay. They go to the 
pharmacist. They have a $5 or $10 co-pay at the pharmacy. They 
have no idea what this is costing them.
    We feel, as I am sure others do, too, that to empower them 
personally to understand and take charge of their own health 
care would go a long way towards helping lower costs.
    Dr. Hill. First dollar coverage demands no accountability 
of any kind. We have evidence in another program in the 
Medicare program if we reform Medicare the way we would like to 
then we wouldn't have Medigap coverage. So patients wouldn't 
have this first dollar coverage, and then they would have to 
think twice about spending for the routine health care. It 
would cut services utilized by Medicare patients by 28 percent, 
which would amount to $52 billion over 3 years.
    I know the other side of the argument, that people might 
neglect themselves. I have heard both arguments. But we have to 
hold people responsible and accountable. If they were 
individually-owned purchasers and chose their health benefit 
plan, then they would be much more responsible.
    Chairman Thune. Mr. Udall.
    Mr. Udall. Thank you, Mr. Chairman.
    You know, Mr. Chairman, one of the things that I think is 
interrelated here, we had previous hearings on getting 
infrastructure into these rural areas. And your testimony about 
telemedicine, what I am wondering, these previous hearings we 
don't see the kind of broadband and Internet services in rural 
areas that we see in the urban areas. How much is that holding 
us back in terms of capitalizing on things like telemedicine 
and getting it into all of the rural areas across America?
    It doesn't just have to be to Mary. Any of the other 
panelists can comment on that.
    Ms. DeVany. Sure. The issue of conductivity has been one 
that we have dealt with since the beginning of our program. A 
lot of our sites where we really need to get the technology out 
to we have not been able to simply because of exactly what you 
mentioned. They don't have the infrastructure available for the 
type of lines that we had need of to make those connections and 
the telemedicine connection. We need a larger bandwidth for the 
clinical side of things to make sure that the diagnosis is 
accurate.
    What we have been seeing, though, is a shift in technology 
itself, being able to utilize some other types of networks out 
there. We have been able to utilize and piggyback off some of 
those networks already in place for the purposes of 
telemedicine, but we still have not been able to reach every 
facility within our network. We have several that flat-out 
can't afford to have a network connection with our facility, 
whether it be for data or for telemedicine.
    Mr. Udall. In order to do telemedicine, what types of lines 
are required?
    Ms. DeVany. Anywhere from--we utilize ISDN lines. We use 
T-1 lines. I think we also have a facility that has been 
fortunate enough to have an OC-3. These are the type of lines 
that our network has utilized.
    Mr. Udall. Any other of the panelists on this issue?
    Mr. Nelson. Preventative medicine was brought up as one of 
the problems that is seen when you have individuals paying for 
their own health insurance and understanding what it is really 
costing. Certainly telemedicine and the telehealth program 
could go a long way toward helping consumers to have a more 
reasonable cost for preventative medicine.
    Dr. Hill. The AMA is very supportive of piloting 
telemedicine. Telemedicine is in its infancy. It has got a 
tremendous amount of evolving and developing to do before we 
learn how to use it practically. I think we will. I think we 
will learn how to use it efficiently. I think eventually it may 
even reduce the cost of health care and certainly will keep 
people out of the hospital.
    In order to fund that kind of technology, however, there 
are very few health systems that are capable of doing that 
around the country, particularly in the rural areas.
    Mississippi happens to be a very wired State. I don't know 
whether you knew that or not, but we are close to topping a few 
things, and one of them is being wired for those fancy lines 
that I don't know anything about except I know what they do. We 
have demonstration projects now at our medical center. But we 
are taking care of congestive heart failure patients at home 
and keeping them out of the hospitals, which is saving hundreds 
of thousands of dollars a year.
    I am running a program with schools right now, doing 
routine check of children who come to the school nurse using 
interactive telemedicine. We think that is going to be very 
practical because the parents don't have to get off work to 
come and get them and take them to the doctor's office. The 
teachers that can be treated by telemedicine don't have to get 
off work.
    But we are a long way from this being developed into the 
stage that we can start talking about it becoming commonly 
used. I hope that it will. I think that it will. But it is 
going to require some funding and some support in order to see 
what works and what doesn't work over time. But I am very 
supportive of us persisting with that funding of telemedicine.
    Mr. Udall. I wish we were as wired as you are in 
Mississippi. We have real--we really lack it in New Mexico.
    One of the other issues, you have touched on it, each of 
you have touched on it a little bit, is the whole issue of 
getting doctors to go out and live in rural communities. I 
guess one of the biggest success factors has been if a doctor--
if an individual is raised in a rural area and is familiar with 
it and that is part of their background, generally if they 
become a physician and they come back to the rural area, they 
stay there. Other than that as a drawing card, I think we have 
a real problem.
    I mean, I have been told by many executives and health 
clinic people just how many problems they have in terms of 
getting people out there. It has been said over and over again 
we have to think outside the box in terms of getting physicians 
into rural areas. Do any of you have any thoughts on what you 
think is working in terms of getting physicians into rural 
areas, and are there programs that are there that help that we 
are not funding or putting the resources behind?
    Dr. Hill. There are two things that will change behavior. 
One thing is the incentive, and the other is money, and they 
are the same thing. I mean that sort of facetiously, but also 
there is some truth in that.
    You are right. The two things that we know are directly 
related to getting physicians to practice in rural or 
underserved areas is, number one, being reared in that area 
and, number two, their career choice as a freshman medical year 
student being underserved care.
    Now that is not true with other primary care specialties. 
For instance, in internal medicine, it is universally related, 
which I think is fascinating. Pediatrics, it is neutral. So 
family medicine seems to be the way to go.
    Of course, I am extremely biased. I will admit that up 
front. But I think the salvation of our health care system in 
this country has got to be the opportunity for every citizen to 
have access to a well-trained primary care physician to manage 
their health care. We are not doing that. And that is where we 
need to emphasize, I think, showing my bias, where we need to 
be. The National Health Service Corps certainly has had some 
successes.
    Some of us--and this is a personal opinion, not AMA's 
opinion--think that if we reengineered that program a little 
bit we could make it 100 percent better and make more people 
stay longer. We have statistics that shows if somebody stays in 
an area for 5 years they are much more likely to stay there the 
rest of their life. My wife says it is because they bought a 
house there or married a girl or have a loan at the bank. 
Whatever the reason, it appears to be true.
    This program requires 2 to 4 years. Loan repayment, no 
question about it. The average medical student now is $97,500 
in debt when they graduate from medical school. Loan repayment 
programs absolutely have an impact, and we need to work much 
more innovatively on those types of programs.
    Mr. Nelson. One thing we did in my social community in 
south central South Dakota--it could be done all over--but we 
went to--this is about 20 years ago, wanted a surgeon in our 
community to serve our hospital. We had a family physician, but 
we thought we needed a surgeon. We went around and collected 
money from the surrounding area business people and farmers and 
went to the University of South Dakota Medical School and said 
if someone would come and stay 5 years as a surgeon we would 
offer some funding for their medical education. We were able to 
do that, and that surgeon--that was 20 years ago, and the 
surgeon is still there.
    So I agree with you that the 5 years is key. We feel we 
have a lot to offer all over rural areas, New Mexico and South 
Dakota and Mississippi. Five years would enable someone to see 
what there is to offer. There is kind of a bias against getting 
to go out there in the first place. But once they are there I 
think they find that it might be worthwhile to stay.
    Ms. DeVany. I think the technology can also help facilitate 
some of that that has been shared. Just the ability to continue 
your education is vitally important. Often a physician would 
have to pick up, leave for a week or whatever, for educational 
opportunities. Telehealth technology allows them to go down to 
a conference room for an hour get a credit unit and go back to 
their practice, allowing them to increase their ability to have 
that ongoing education opportunity.
    Mr. Udall. Thank you very much for your testimony.
    Chairman Thune. I will just explore a couple other issues.
    Mary, you had mentioned, and I think that if you look at 
some of the smaller communities across South Dakota, 
bandwidth--obviously, in order to get the transmission quality 
and the resolution necessary--I mean, Dr. Hill noted, too, and 
I think it is true--in order to be able to do consultations, 
you have got to have a level of transmission quality that 
enables you to see with great clarity what is happening off 
site. Right now, it seems to me at least, that there are--in 
some of the areas in our State we are doing pretty well with 
that, but is that primarily the barrier right now? Is it a 
connectivity issue? Or are there other things that we need to 
do that will encourage new communities to accept and utilize 
telehealth services?
    Ms. DeVany. The wiring issue is one--is just one issue. 
Culture is another. Often, a physician is not comfortable using 
the equipment, and that doesn't encourage them to pursue it 
very often. Insurance coverage is another reason for not using 
telemedicine. It is not covered as it would be the same as a 
face-to-face consult.
    Now, there are obviously some situations where telemedicine 
cannot provide the same type of service. But there are many 
situations where telemedicine can, and those are the areas that 
really need to be looked at and opened up for insurance 
coverage. Whether it be Medicare or whether it be third-party 
payers, they need to be encouraged to expand their offerings of 
coverage.
    Chairman Thune. One of the things that--the whole 
reimbursement issue is something that I worked on a couple of 
years ago, but we have got a lot of room to improve there I 
think. But clearly that is one of the issues that, if we are 
going to really make this program work, we are going to have 
to, as the doc said, provide incentives/dollars, to put those 
incentives in place.
    I mean, one of the things that I have been doing is I have 
traveled around and listened to health care providers in some 
of the smaller settings--smaller community, smaller hospitals. 
This week, I am cosponsoring legislation that would expand the 
critical access hospital program to hospitals with 50 or fewer 
beds and also expand it to include some post-acute areas like 
home health skilled nursing, ambulance service, those types of 
things, investment in infrastructure and technology. Those are 
all things that we feel are particularly needed.
    There are a lot of hospitals who can't meet the eligibility 
criteria right now to get cost basis reimbursement under the 
critical access hospital program. But if we expand that model a 
little bit it would be able to draw more of those facilities in 
and hopefully prolong their livelihoods, make them--at least 
right now a lot of those small health care facilities, 
hospitals, clinics are losing money. It is the old axiom that 
we lose a little bit on each sale, but we make up for it in 
volume. You can only do that for so long. This is what we are 
seeing out there.
    The one thing that I also noted in your testimony was the 
impact on the local economy. If you are not having to send 
somebody--if somebody can be treated there instead of having to 
send them to Sioux Falls, it does keep people in town. You 
know, when people go to a bigger community they obviously do 
their shopping and everything else there. I think it does have 
a very direct impact on the local economy. The jobs issue very 
much comes into play.
    So you see I am very excited about the prospects of that. I 
am a big believer. I think there is a lot of potential. I 
understand what Dr. Hill is indicating in terms of this is in 
the very embryonic stages of its development, but I see some 
dramatic improvements all the time as I travel, just in the 
last year.
    What we are doing I think down in Winner, Wayne, your 
hospital now down there has hooked up, and they have some 
pretty remarkable things going on down there. So it is very 
encouraging to see that, but we have a lot of work ahead of us.
    Tom sort of touched on this, but it is one thing I heard 
over and over, too, and that is not only are reimbursements an 
issue but also recruitment of health care professionals, that 
we are just having a really hard time getting people to go into 
rural areas.
    Again, as I said, in the community that I grew up in, it 
has been a real challenge. You get out farther away from a 
population center and the distances become greater and there 
just isn't a whole lot of incentive for people to go live in 
those communities. I think it is a great place to live, but not 
everybody seems to share that opinion.
    I think we have to be thinking of ways from an educational 
standpoint how we can put those types of incentives in place, 
too. Nurses, lab techs, all those type of things, we are really 
struggling to meet that need.
    I guess I would just--Tom maybe has some more questions, 
too, but the whole question of the uninsured is, the higher 
level of uninsureds--when you have got small employers--I think 
the number was with 18 or fewer or it is 18 percent higher 
premiums, if you have got a small business, as opposed to a 
business with 200 or more employees. That is something that I 
thinkthat we need to be looking at very seriously. Because the 
number of uninsured goes up every year.
    If you see these premiums increase, that is--you are all 
talking about it continuing to go up, more and more businesses 
continue to drop coverage, and you will see more and more in 
the ranks of uninsured.
    I think this whole idea of coming up with a model that is 
sort of different than what we have used in the past, the 
employer-based, third-party-based system where you have an 
individual having more control over their health care choices, 
gives them more choices and I think creates more competition 
and, hopefully, will help control costs.
    Mr. Hatch. That is another problem we have. When we are 
forced to select a program I have got, you know, various 
employees, and a different program would suit each one of them 
different. We are forced to pick one program, whether it be a 
PPO or some--you know, a major medical would be more 
appropriate. As a purchaser of a small group, I don't know if--
I would like to see some way that the HP plans would allow us 
some selectivity on an individual basis.
    Chairman Thune. Yes.
    Other questions, Tom?
    Mr. Udall. Just one additional question here.
    Over 23 percent of the Medicare population is located in 
rural areas, while rural areas account for only 20 percent of 
the total population. Yet Medicare spends less money on rural 
beneficiaries than on urban beneficiaries. Do any of you have 
any thoughts on that and why that is happening? Are there any 
corrections we need to make there?
    Dr. Hill. Urban patients require more services or ask for 
more services is the reason the cost per capita is higher. That 
is the issue, the same issue of the gypsies that I do not want 
to talk about today.
    Mr. Udall. Very well put, Dr. Hill.
    Dr. Hill. But I will, if you want me to.
    Mr. Udall. Go ahead.
    Dr. Hill. I am teasing. I do not want to talk about it.
    Mr. Udall. I think both of us appreciate very much your 
coming and your testimony today. Thank you very much.
    Chairman Thune. Thanks, Tom. If anybody has any concluding 
remarks, or if there is anything that we have prompted in our 
questions that did not get adequately addressed, feel free to 
comment. We are getting ready to wrap this up. But the 
testimony is very useful. This is an issue that is not going 
away. It is one that populations in rural areas tend to be more 
elderly, and so the Medicare/Medicaid caseload in most of the 
hospitals in rural areas is a very high percentage of total 
revenues, and total caseload, treatments, everything else. And 
I think that is something that, as we talk about how to make 
Medicare strengthened and improved and so forth, too, those are 
all issues. And the issue of prescription drugs seems to come 
up frequently in visiting some of those rural settings.
    Does anybody have any closing remarks or comments with 
respect to this issue, things that we perhaps have not touched 
on?
    Mr. Nelson. Just overall I would like to add that it is 
not--every rural area is different. It is not one size fits 
all. Certainly we want to think outside the box and come up 
with new things, but it has to be able to adjust to different 
areas of the country and different parts of rural hospitals and 
providers and whatever. So it is not just all try to fit in all 
into one size. I think that is important.
    Dr. Hill. We did not talk about the soaring medical 
liability insurance premiums. They certainly have an impact, I 
think, on physicians' choices of careers for that matter. And I 
think that is a big issue that needs to be addressed, probably 
from a Federal level, because it is not being very well 
addressed at the State level.
    Chairman Thune. Okay. The one thing in addition to that 
too, yesterday I was in Kent, South Dakota, and the 
administrator there was a new administrator in the last year or 
so, and he showed me the amount of paperwork that it took to 
change the name of the administrator of the hospital from the 
previous administrator to this administrator, and it was like 
an inch thick. And that was another thing I heard a lot about 
was just the paperwork compliance and the regulations and so 
forth. That is something.
    Mr. Hatch. The Patients' Bill of Rights is also an issue 
somewhat related as far as lawsuits. If I am a small 
businessman, and I have the fear of being sued by my employees, 
it is going to make me less conducive to even carrying a plan. 
And a lot of that may be just a fear factor as far as a lot of 
our NFIB members, but it is still an issue. The more people 
that drop their program, the bigger the problem becomes 
nationwide.
    Ms. DeVany. The only other issue that relates to the total 
situation is the cross-State licensure of physicians. That is 
an issue that we continue to work with. Fortunately, most of 
our physicians that use the system are licensed in our three-
State area. We are kind of in that vicinity. So most of them 
that use the equipment are licensed, but to try to encourage 
additional specialists to look at this as an opportunity, that 
remains an issue for us.
    Chairman Thune. Great.
    Well, again, I appreciate all of your testimony and your 
response to the questions. This has been very helpful. And if 
you have anything to add, the record will be open. We would be 
happy to get that included as part of the permanent hearing 
record.
    With that, we are adjourned.
    [Whereupon, at 3:20 p.m., the Subcommittee was adjourned.]

    Opening Statement of Chairman John Thune, Subcommittee on Rural 
                Enterprises, Agriculture and Technology

    Good afternoon and welcome to this hearing of the Subcommittee on 
Rural Enterprises, Agriculture and Technology. I want to thank all the 
witnesses who have traveled over long distances to be here with us.
    Today we will be examining the issue of health care in rural 
America. Obtaining access to adequate and affordable health care is a 
problem for small business owners throughout the country, but it can be 
particularly difficult in rural areas. As Congress continues to address 
the health care problems our country faces, we must not lose sight of 
the 43 million uninsured Americans--this is a real crisis. Many people 
do not realize that over 60% of our uninsured population consists of 
small business owners, workers, and family members. By addressing the 
access problems faced by millions of workers, Congress can greatly 
reduce the number of uninsured.
    One of the reasons small businesses cannot afford health coverage 
for their employees is that they are unable to achieve the economies of 
scale and purchasing power of larger corporations and unions. For 
example, on average, a worker in a firm with less than 10 employees 
pays 18% more for health insurance than a worker in a firm with 200 or 
more employees. In addition, self-employed individuals can only deduct 
70% of their health insurance premiums from their taxes, while their 
corporate counterparts can deduct 100% of the cost of health insurance 
premiums for their employees. Small businesses suffer from unequal 
treatment--what they want most is a level playing field when it comes 
to health care.
    Large corporations use the purchasing power of thousands of 
employees to offer affordable health insurance to their workers. Small 
business owners, on the other hand, have to find their insurance on an 
individual basis, and in rural states, insurers have been leaving the 
small group insurance market, making it difficult to find affordable 
health coverage.
    I was very heartened to see President Bush today issue his plan for 
helping small businesses prosper in our economy. The President is aware 
of the health care access and affordability problems facing small 
business, and his plan includes concrete steps to increase health 
security for employees of small businesses. His agenda calls for 
Association Health Plans to be available for associations that want to 
provide them for their members, and it calls for a permanent extension 
of Medical Savings Accounts, including a significant reduction in the 
required deductible for these health accounts.
    Congress needs to ensure that there are many different health 
insurance options for small business owners to utilize. We need to help 
our businesses attract and keep employees, and nothing helps more than 
the ability to provide health insurance. For rural states, the ability 
of small business owners to obtain and provide affordable health 
insurance for their employees is vital to our efforts to attract new 
jobs and prevent population loss.
    I look forward to hearing testimony from our witnesses, and I thank 
you all for participating in this hearing.

         Testimony of Ronald Hatch, President, Hatch Furniture

    Good afternoon Mr. Chairman and Members of the Subcommittee. Thank 
you for inviting me from South Dakota today to talk about the important 
issue of affordable, accessible health insurance, especially for those 
owning or working for small businesses in rural areas. I am pleased to 
be here on behalf of the National Federation of Independent Business 
(NFIB), representing 600,000 members who face a similar challenge.
    My name is Ron Hatch, owner of Hatch Furniture, a fifth generation 
retail furniture store that was founded in 1903. We have two stores, 
one in Yankton, SD, a community of about 15,000, and one 60 miles away 
in Sioux City, Iowa, with about 130,000 residents. In 1974, I entered 
the business after serving as a pilot in the United States Navy. My 
son, Jon Hatch became the 5th generation to enter the business. Most 
businesses survive an average of twenty years so we are fortunate but 
it is always a challenge.
    At Hatch Furniture, we sell all types of home furnishings, floor 
coverings, and custom window treatments. I employ about twenty-eight 
full time workers and a few who work part time. Many of them have been 
with the company for ten or more years. My employees range in skill 
level, from high school to college graduates, in age, from twenties to 
mid-fifties, and earn salaries ranging from $18,000 to the high 
$50,000. My salary is $24,000. Their roles include managerial, 
administrative, sales, and warehouse and delivery.
    We value our employees, which is why Hatch Furniture has offered 
employee-sponsored health insurance since the early 70s. When I became 
president, I simply continued offering health benefits without much 
concern--until last year when the cost of our premiums skyrocketed 
approximately 50 percent. Since then, I've learned first-hand the 
struggle many small business owners face in trying to secure affordable 
health coverage.
    Our trouble began last year when American Medical Security pulled 
out of the South Dakota market, leaving me to search for a new insurer. 
I was shocked to learn how difficult it was to find an affordable plan, 
and how burdensome it is to change carriers. My employees spent time 
away from their work completing lengthy health statement applications 
for four different insurers. After reviewing all four bids and seeing 
no great competition in costs, I decided to go with CBSA, a carrier 
that offers a Preferred Provider Organization (PPO). We are sometimes 
limited on choice because we need a PPO list that covers our employees 
in both Yankton and Sioux City.
    This switch has been tough, as both the employer and employee 
shares for monthly premiums, co-payments, and deductibles have doubled. 
For example, I am fifty-five years old and I include only my wife on my 
plan. Our monthly premiums jumped from $390 to $695 for just the two of 
us. The prior $390 rate included our sixteen-year-old son who is now 
under separate coverage.
    It isn't just the monthly premiums that have shot up either. Last 
year my employees pain $15 for a doctor visit and for prescription co-
pays. This year, they pay $30 for each visit or drug. In addition, our 
deductible went from $250 to $1,000 annually!
    Because the cost increases have been extreme I've tried to help my 
employees in the best way that I can by absorbing more of the cost. For 
the past four years, I paid $100 toward my employees' monthly premiums, 
but now, I pay $125. Additionally, my company is paying $500 of the 
$1,000 annual deductible for each employee.
    However, the ramifications go beyond cost. Because several 
employees could not afford the new coverage, only nine of my twenty-
eight employees opt to have our group health care coverage at this 
time. Most employees who have chosen our coverage are in their twenties 
and thirties because the premiums are more affordable than for those 
who are in their forties and fifties, like myself. Our older employees 
have been forced to joint he ranks of the working uninsured or obtain 
limited coverage outside our group.
    Access to care is another issue. In an attempt to control cost, my 
wife and I purchased an individual policy with a separate provider for 
our sixteen-year-old son. This poses its own set of challenges, as his 
insurer is considering not renewing the contract at our local hospital. 
Therefore, if my son needs to go to the hospital and we want his 
insurance to cover it, we may have to travel 60 to 90 miles to the 
closest one, which is in Iowa.
    To some in my state, a 60 to 90 mile trek might be considered a 
short trip. In Yankton, we are fortunate to have a good regional 
hospital but others in South Dakota aren't so lucky.
    Unfortunately, rising health insurance costs go beyond insurance 
carriers. I feel federal and state mandates have a great deal to do 
with rising costs. As a board member of the Benedictine Foundation in 
Yankton, we approve expenditures for health care in the community. 
These expenditures include health related education, medical student 
tuition and equipment purchases. I am appalled at the cost of some 
medical equipment as we recently purchased a $2,000 chair for people to 
use while they donate blood because it had to meet certain 
specifications. A $300 chair from Hatch Furniture could have done the 
same job.
    All of these factors--cost increases, lack of competition between 
plans, access to care, and mandates--make me very worried about Hatch 
Furniture's ability to offer health benefits in the future. In our July 
renewal brings another double-digit increase, I'm no sure how we will 
absorb it, or for that matter, how many employees will be able to keep 
their coverage. I fear that more might go without insurance. If more 
employees decide to drop coverage, I may not even be able to qualify 
for group coverage, at which point everybody loses. The lack of 
competitive benefits also severely limits my ability to hire and retain 
employees.
    It's for these reasons that I support legislation endorsed by NFIB 
that would create Association Health Plans (AHPs). AHPs would allow 
small business owners to band together across state lines to purchase 
health insurance as part of a large group, thus ensuring greater 
bargaining power, lower administrative costs and freedom from costly 
state insurance mandates. Fortune 500 companies and labor unions 
already have this right. AFPs will simply level the playing field and 
give small employers the same privileges as their counterparts in labor 
and big business. In addition, AFPs will introduce into the market 
place much needed competition and diversity. Without the ability to 
shop for more affordable options, we are left with shifting cost or 
dropping coverage. Association health plans would be a health care 
purchasing dream come true and would ensure more choice for rural 
areas.
    Eliminating the regulatory burden on medical savings accounts 
(MSAs) would also benefit small business. MSAs, without the current 
restrictions, would provide positive benefits to employees by giving 
them control over their own health care dollars. Making MSAs more 
workable by easing the regulatory burden on them will provide yet 
another affordable health care option to small business. Tax credits 
for individuals would also be a welcomed option.
    Now, I'm not a health policy expert, but to me, AHPs, MSAs, and tax 
credits seem like good, common sense solutions to controlling the cost 
of quality health care.
    Mr. Chairman, thank you for allowing me to share my experience with 
you and the Members of the Subcommittee. I look forward to following 
the good work that Congress will hopefully do in relation to employer-
based health care, and I am happy to answer any questions that the 
Committee may have.

 Statement of Mary DeVany, Managers, Avera McKennan TeleHealth Network

    Good afternoon, my name is Mary DeVany. I am the manager of the 
Avera McKennan TeleHealth Network in Sioux Falls, South Dakota. Thank 
you to the committee for the opportunity to visit with you today, and a 
very sincere thank you to Mr. Thune for his ongoing support of 
telehealth activities.
History/Experience
    The Avera McKennan TeleHealth Network was established in December 
1994 and currently uses interactive videoconferencing at various 
hospitals within the region to provide telehealth services. The Avera 
McKennan TeleHealth Network primarily uses two-way interactive 
videoconferencing throughout its network. We also have a video bridge 
which allows us to connect multiple sites simultaneously for various 
events.
    Over the years, our network has provided clinical telemedicine 
services in pulmonology, dermatology, neurology, orthopedics, surgical 
care follow-up, pediatrics, mental health, fetal ultrasound, internal 
medicine, and trauma. On average, we are providing about 400 clinical 
consults (physician to patient) annually. However, telehealth is more 
inclusive that just ``telemedicine'', or the clinical applications. The 
system is more inclusive that just ``telemedicine'', or the clinical 
applications. The system is also used for distance education activities 
whether it is for clinical purposes (tumor conferences and various 
grand rounds topics), or staff and community education, as well as for 
various meetings (administrative, association, community).
Issues
    As you are aware, South Dakota is VERY rural. There are only ten 
(10) communities within the state with a population over 10,000. From a 
healthcare standpoint, specialist physicians are concentrated on the 
eastern (Sioux Falls) and western (Rapid City) edges of our state, with 
about 350 miles separating these two communities. The number of miles 
from our network's rural facilities to Avera McKennan runs from 45-170 
miles (1-3 hour drive, one-way).
    The availability of telehealth technology helps to reduce the 
``healthcare penalty'' for choosing life in a small town. Citizens 
should not be held at a disadvantage simply because they live in a 
rural area, especially if technology can health resolve that issue. 
Access to healthcare leads to improve quality of life for individuals 
in rural communities and allows them (and encourages them) to remain in 
those rural communities.
    Many communities are simply trying to keep their hospital open and 
to continue to provide those services that are currently available. 
Often facilities are having to choose, and limit, what services they 
are able to continue to provide. The closing of a local hospital, or 
healthcare facility, signals a major crisis for a rural community and 
every effort should be made to maintain a facility's viability. A 
facility can be strengthened by making additional or enhanced services 
available. This technology helps make quality specialty healthcare 
services more easily available to our rural residents.
    Example.--The availability of the OB Ultrasound via telemedicine at 
the Flandreau Municipal Hospital has allowed them to offer a service 
they previously had to eliminate from their facility. This has 
encouraged families to consider this rural facility to handle their 
healthcare needs instead of looking to facilities in other regional 
communities. By providing a wider range of healthcare services, 
patients are encouraged to stay in their own community to access their 
healthcare and also keep more of their overall dollars within their 
hometown economy.
    Physician isolation is an issue with which all rural communities 
are faced. However, physicians are not the only ones affected. All 
levels of healthcare providers experience this difficulty. The 
availability of telehealth technology and distance learning 
opportunities allows for greater peer-to-peer interactions. It also 
helps to improve the quality of healthcare services at the rural 
facility by providing current medical information to healthcare and 
administrative staff on a regular basis. Increased educational 
opportunities for healthcare providers can improve their ability to 
provide quality healthcare.
    Rural hospitals and other healthcare facilities have learned to be 
very frugal with their budget. Dollars are always tight. Staff still 
need appropriate training and educational opportunities, and the 
availability of video technology allows for a degree of cost savings 
over the year by allowing employees to attend an educational event from 
their home facility and reducing the need to travel in order to obtain 
the necessary information.
    Example of the dollars saved.--In both cases, the amount of money 
the participants would have spent to attend the event on site was 
calculated (driving/meals/hotel) as was the number of non-productive 
hours and added together to reach the total savings amount.
           One 2-hour event (HIPAA/EMTALA regulations) had a 
        total savings of $5,077. This relates directly to the rural 
        facilities and their ability to address federal regulations.
           6 month estimation of dollars saved for January-
        June, 2001 was $33,311. This Includes non-productive hours 
        (drive-time for just one person) and mileage for 4 sites.
    Probably the most far-reaching contribution made by telehealth 
technology is increased support for ``main street.'' Allowing patients 
to receive speciality healthcare from their home facility, helps to 
keep additional dollars ``at home''. By receiving services ``at home'', 
the additional lab work, x-rays, or pharmacy needs are also met by 
local providers. Additionally, the peripheral stops that can go along 
with a ``trip to Sioux Falls'', like groceries, gas, a stop at Target 
or Walmart, are reduced and more of these dollars remain in the 
community as well, not to mention any additional hotel and restaurant 
expenses that might occur.
    Not only does this technology help to provide increased 
opportunities for improved healthcare services, but it also improves 
the perception of the level of quality care available from their 
hometown provider and healthcare facility. Telehealth has becomean 
important tool in the provision of quality healthcare, especially rural 
healthcare. While it may not directly affect, or be directly affected 
by the proposed Association Health Plans or the Medical Savings 
Accounts, telemedicine can help to keep the overall cost of medical 
care down by providing care at a lower cost facility, helping with 
early diagnosis and care, and keeping more healthcare dollars ``at 
home.''
Next Steps
    Awareness is key to the success of telehealth networks. Improving 
awareness, whether it is at the federal level or at rural community 
level, will only serve to strengthen the programs, the rural facilities 
and the communities in general.
    There are a couple of specific areas where your assistance and 
support is needed. One is in the area of reimbursement. Over the past 
years telemedicine has developed a successful track record and is a 
proven tool. In many respects it has been proven to be as good as an 
actual face-to-face clinical consult. However, you wouldn't know that 
by looking at who and what is being paid. Your support is needed to 
expand the current level of reimbursement and to encourage Medicare and 
insurance companies to provide full coverage. There has been a good 
start, but more progress is needed. Specifically, your assistance is 
needed in expanding the current Medicare reimbursement structure. There 
needs to be expansion in the eligible facilities (long term care 
facilities, i.e. nursing homes and in-patient/out-patient mental health 
facilities) and the eligible providers (occupational therapists, speech 
therapists and physical therapists), as well as the allowable CPT 
codes.
    Also, over the past few months there appears to have been a 
somewhat arbitrary decision to move the Office for the Advancement of 
Telehealth (OAT) to be housed within the HIV/AIDS Bureau. There is a 
great concern that this change signals a shift in the level of support 
for this program and a greater concern that the awareness of telehealth 
will diminish from a lack of visibility. The telehealth community 
around the nation has a great deal of appreciation for OAT and their 
support of our projects over the years. They have service as a valuable 
resource for new and seasoned programs alike. We would like to see this 
program reinstated in its former location within HRSA and rather than 
cut funding for this program, these activities should be expanded.
    While there are other federal funding sources for technology, the 
OAT is really the only one that has developed an understanding of how 
telehealth really works within a rural setting and regularly encourages 
information sharing between projects. It is of great concern that HRSA 
appears to have a reduced interest in this program and the benefits 
brought to small communities through the availability of telehealth 
services.
Additional Information
    Also included with this testimony, are several ``success stories'' 
from various facilities within the Avera McKennan TeleHealth Network. 
These help bring the understanding or the benefits of telehealth to a 
level we can all appreciate.
                               __________

                telehealth/telemedicine success stories

Avera McKennan: Family relations Strengthened
    When possible we try to link patients required to stay in the 
hospital for long period of time with their family at a distance. We 
were contacted by our Leukemia and Bone marrow Transplant program to 
see if we could connect a daughter and family in Fairbanks, Alaska with 
her father hospitalized at Avera McKennan. We were fortunate to 
coordinate with the University of Alaska who allowed the patient's 
family to use one of their rooms, free of charge.
    The visit started with the patient, wife and transplant team 
present at our location and the daughter, husband and 2 children 
present in Alaska. A team conference was held first, updating the 
daughter on her father's progress. After the conference was completed, 
the team left and family was allowed to visit. During the conference 
the 5 year-old showed everyone her new school shoes and talked about 
her excitement of entering school. The nicest moment, when you know 
that telemedicine really brings families closer together, was when the 
18 month-old reached out to the TV screen and wanted grandpa to pick 
him up (and cried when he couldn't . . .). Not quite the same as being 
there, but very close!
Avera McKennan: A Little Help From Friends
    In an effort to fight a case of home-sickness/depression, a young 
patient suffering from head-trauma visited with her schoolmates via 
interactive-video. Even though this was not an official 
``consultation'' involving a physician, it was beneficial to the 
overall care of the patient. Not only did it improve her overall mental 
health status, it also gave the speech therapist, who attended the 
event with the patient, a better understanding that this patient could 
be pushed harder during her therapy sessions and possibly could be 
progressing at a faster pace. The patient's parents and her hometown 
school principal requested this session. Her twin sister and her 
brother were also involved in the event from the school, strengthening 
their relationship during her absence. It also gave her classmates a 
sense of her progress.
Gregory Healthcare Center: CME Credits & Psychiatry
    Prior to the availability of telemedicine, the physician group 
traveled at least 2.5 hours to get CME's. Now through Grand Rounds 
there are active participants every week and it is something that the 
doctors have utilize to its fullest. Geriatric psychiatric service is 
also something now provided because of telemedicine. This has been a 
very positive service as many of the people being treated are nursing 
home residents and it would be difficult for them to travel to Sioux 
Falls, or elsewhere, for evaluations.
Madison Community Hospital: OB Ultrasound
    A patient presented to this facility for an OB ultrasound, with 
cramping in the second trimester of pregnancy. The ultrasound was 
obtained and the specialty physician recommended the patient come to 
Sioux Falls to have a cerclage procedure done. This was done in Sioux 
Falls that same day, but this patient has since returned to MCH for her 
follow-up ultrasounds. Prior to telemedicine capabilities, this patient 
would have been sent to Sioux Falls and her care would have been 
followed up there. But because of telemedicine, this patient has been 
able to return to Madison for her care, and as far as I know plans on 
delivering here at Madison.
Avera Sacred Heart Hospital, Yankton: Burn
    A young man received electrical burns last summer while working on 
power lines for the REA in a rural South Dakota community. He was 
transferred to Minneapolis for burn therapy. Following his discharge, 
the doctor treating him had asked to use the telemedicine system for 
monitoring his progress. This would allow the contact visually without 
this person having to travel to Minneapolis for the follow-up. We were 
able to arrange and the visits were held here at ASHH and the person 
now is discharged and no longer has need for the system. The savings to 
that individual were both in time and travel.
St. Bernard's Providence Hospital, Milbank: OB Ultrasound
    One specific example, we had an emergency consult via telemedicine 
with the perinatologist on a patient. His recommendation was to do a C-
Section immediately. The C-Section was done, and a healthy, normal baby 
was born. The outcome could have been detrimental to the baby, which 
could have resulted in high medical bills for the patient over the 
years. It could have resulted in a legal situation, costing the 
facility and the facility's insurance company money. However, it didn't 
happen because the consult changed the outcome. How do you attach a 
dollar value when you don't know what the outcome would have been? Is 
it worth the risk, when you have the capabilities? We feel that the 
patient's welfare should come first. If it is financially possible for 
the facility to handle the cost of telemedicine, whether it makes money 
or not, we would be willing to handle the cost.
Flandreau Community Hospital: Pulmonology
    A gentleman presented himself to the Flandreau Medical practice 
with advanced COPD. His condition placed many limitations on him as any 
activity exhausted all oxygen reserves. Therefore, travel was not 
considered a positive option. This patient was scheduled with 
pulmonologist via telemedicine, who changed his treatment regimen, 
making medication adjustments and incorporating pulmonary rehab into 
his schedule. The improvement was impressive. Telemedicine allowed the 
patient to remain in his home community while accessing specialize 
health care. The outcome . . . the patient regained a substantial 
quality to his lifestyle.

[GRAPHIC] [TIFF OMITTED] 79326.001

 Testimony of Wayne Nelson, President, Communicating for Agriculture & 
                           the Self-Employed

    Chairman Thune, members of the subcommittee, I want to thank you 
for the invitation to share our thoughts about critical issues facing 
access to health care communities of our country.
    My name is Wayne Nelson. I serve as president of Communicating for 
Agriculture & the Self-Employed (CA), and I also am a grain farmer from 
Winner, South Dakota. CA works on a variety of priority issues on 
behalf of our farmers, ranchers and rural small business members. 
However, throughout CA's 30 year history, we have worked to maintain 
and improve the quality of health care services available in rural 
areas, and we've worked to try to keep health insurance affordable for 
rural people so that they can, in fact, have access to health care 
services. Health care access and affordability has been a priority for 
us from the beginning.
    There are five key recommendations we would like to make to the 
committee today:
          1. Congress must maintain adequate funding for key 
        infrastructure programs that help maintain the quality of rural 
        health care services; particularly the National Health Services 
        Corp and other programs that help bring and keep doctors, 
        nurses and health care providers to rural areas to practice 
        medicine; and for telemedicine programs that support our rural 
        providers and keep them linked to the latest, best knowledge 
        available for quality care.
          2. We're very concerned about cuts and under-funding for 
        reimbursement of Medicaid and Medicare for rural health care 
        providers and their residual impact. For years, reduce funding 
        of the government programs has led to cost shifting by 
        providers, resulting in higher costs for private insurance and 
        higher premiums for consumers. There are significant problems 
        in some rural states where Medicaid and Medicare makes up the 
        majority of health care. There is a growing shortage of 
        specialists and technology available in some rural areas 
        because these providers fear they will lose money.
          3. The most positive development we've seen is the recent 
        passage by the House of Representatives of the President's 
        proposal for refundable tax credits to help reduce the number 
        of uninsured in the country. The most important issue for the 
        rural health care system and for rural Americans when it comes 
        to health care is the affordability of health insurance. For 
        two many small businesses, and too many individuals, health 
        care costs and health insurance premiums are rising above their 
        ability to pay. The increasing lack of affordability of health 
        insurance is causing more people to go uninsured, and that 
        harms the economic viability of the rural health care 
        infrastructure. Refundable tax credits for health insurance 
        addresses the issue head on.
          4. CA has long fought for tax equity when it comes to the 
        deductibility of health insurance premiums. Rural America's 
        economy is made up of more self-employed people, and more small 
        businesses, which find it difficult to offer health insurance. 
        Self-employed people now only receive a partial tax deduction 
        for health insurance, and people who work for businesses that 
        don't offer it received zero deduction. This is truly unfair 
        discrimination in tax policy that makes the net cost of health 
        insurance for these people far more expensive than for people 
        given the employer tax deduction subsidy.
          5. To improve access to health care for rural Americans, one 
        of the most important aspects will be to make sure there is 
        access in the individual health insurance market, and the best 
        way to do so is via a state high-risk health insurance pool. 
        These programs now exist in 29 states and have been shown to 
        provide an access guarantee in a way that helps keep the 
        individual market more competitive and viable for carriers. 
        Funding is a key issue for states with risk pools and the 
        federal government could lend a helpful hand.
 Funding of Rural Health Care Programs
    We are disappointed to learn that the President's budget proposed 
cutting funding for federal share of the State Offices of Rural Health. 
While we were pleased to see that the administration proposed increased 
funding for the National Health Services Corp and Community Health 
Centers, there were cuts proposed for other programs that assist and 
develop health care professionals to serve in rural areas. We need to 
maintain these assistance programs and they do work.
    In the south central South Dakota community of Winner, where I 
live, we wanted to get a surgeon for our local hospital. A committee 
went around the town and collected contributions from individuals and 
businesses to help pay for a medical school for a surgical student if 
they would remain in Winner for at least five years. A surgical student 
was found that agreed to the terms, and several thousand dollars were 
paid toward his medical school expenses. He has now practiced in Winner 
for more than 15 years. Every small town in rural America is not able 
to do this, but this example shows how local communities and government 
assistance can work together to achieve a common goal. Programs like 
the National Health Services Corp provide for this kind of assistance 
to benefit rural communities.
Medicaid and Medicare Reimbursement
    Under funding of Medicare and Medicaid rural reimbursement rates 
continues to be a serious problem for rural states, and the 
repercussions of it should give pause to considerations of proposals to 
address the uninsured problem simply by expanding Medicaid.
    In New Mexico, for example, we've been told that, as a result of 
lower reimbursement rates for Medicare and Medicaid, there are fears of 
a crisis for the state's health care infrastructure. Medicare and 
Medicaid account for almost one-half of the health care delivery in the 
state. (source--chair of the New Mexico Comprehensive Health Insurance 
Pool).
    Medicare is reimbursed at approximately 38 cents on the dollar 
compared to bill charges, while Medicaid is 95 percent of that. When a 
small portion of a state's health care comes from government programs, 
it is a little easier for the rest of the system to absorb the losses. 
However, when a higher portion of health care services is paid for by 
underfunded government programs, it can get impossible for the rest of 
the system to absorb. This is causing problems in a number of areas in 
New Mexico. All of the uninsured and the Medicaid population now must 
go to the University of New Mexico Hospital in Albuquerque, which 
itself is facing major budget problems. There is an exodus of 
physicians willing to practice in rural New Mexico, and supplies and 
facilities there are becoming more inadequate.
    It's a similar story in many other rural states, including South 
Dakota, Montana, Oklahoma and elsewhere. The Seattle Times last week 
reported that many Washington state doctors and clinics, including 
those in eastern Washington, are ending their participation in Medicare 
and Medicaid programs because of low reimbursements.
    And let's not forget that the way the rest of the system absorbs 
underfunding of government programs, is by cost shifting into bills 
charged for private insurance. In New Mexico, that overwhelmingly means 
a cost shift to small business and individuals, which make up the vast 
majority of the state's insured.
    According to Time magazine this month, as a result of higher costs 
and the recession, states--which collectively face a deficit of $40 
billion--cannot afford the extra Medicaid benefits they started to 
offer in the late 1990's.
Tax Credits--A Good Way to Address the Rural Uninsured Problem
    Getting more people adequately insured is the fundamental 
foundation we have to pursue if we are to have adequate access to 
health care in rural America. Rising costs of health insurance is 
putting a strain on small businesses and particularly for individuals, 
like our members, who mostly pay for their own insurance themselves. 
Private insurance premiums rose 8.4 percent in 2000, the highest since 
1993, according to a just released study by the federal Centers for 
Medicare and Medicaid Services (CMS). The report projected premiums 
rose another 9.6 percent in 2001, will reach 10.4 percent this year.
    Proposals for a refundable tax credit for health insurance premiums 
tackle the issue head on. By making the tax credits refundable and 
advanceable, low income people who don't normally pay much or any taxes 
would still benefit from the program. By some estimates, as many as 6 
million more people would become insured. An extra $500 or $1,000 per 
individual, and up to $3,000 per family will clearly make a big 
difference. And it clearly would help many more rural people to get 
coverage.
    As you know, several bipartisan bills have been introduced in both 
the House and Senate that call for refundable tax credits. We commend 
the House for passing health care tax credit bipartisan legislation 
that was included in a previous economic stimulus proposal.
    CA has long supported refundable tax credits to assist those nearly 
40 million Americans who are now uninsured. A large portion of this 40 
million, including a great many rural workers and self-employed people, 
do not have access to employer-based insurance and must look for 
coverage in the individual insurance marketplace. That is why CA firmly 
believes the tax credits must go to the individual. It is appropriate 
that the tax credits could be used by eligible individuals for 
employer-based coverage. However, the credits themselves should be 
provided to the individuals for them to use so that the self-employed 
and people who work for employers that don't provide coverage can make 
full use of the incentive.
    CA will continue to work for eventual passage of legislation in 
both Houses and signing by the President that will provide these 
important tax incentives and assistance to expand coverage by making it 
more affordable.
Tax Equity for Health Insurance Premiums
    The current, welcome interest in tax credits to reduce the number 
of uninsured should not deter anyone in Congress from the need to fix 
the unfair discrimination that has long existed regarding the tax 
deduction allowed for health insurance premiums that is allowed for 
employer-based plans, but not for individuals that pay their own 
insurance.
    Tax equity has to be brought to the table, especially concerning 
individuals purchasing their own insurance. Do you realize that a 
single mother working two part time jobs to feed her family, who does 
not get health insurance from either job, gets ZERO tax deduction for 
the health premiums she pays. Yet corporate employees where insurance 
is provided through their job receive a 100 percent deduction. The 
difference in the net cost of insurance to the individual because of 
this unfair, unequal federal subsidy is a major contributor to the high 
rate of uninsured. CA and many other groups have worked for years to 
get 100 percent deduction for the self-employed paying their own health 
premiums. That goal will be achieved next year when the phase-in of the 
100 percent deduction for the self-employed becomes law. But this 
policy should be law for everyone who pays for their own insurance.
Support State Risk Pools for Access for the ``Uninsurable''
    CA has long believed, and long worked for, the right for everyone 
to have access to health insurance protection, regardless of their 
health, as long as they were willing to pay for it. And the most 
effective way of providing this access guarantee when it comes to the 
individual market is through state high-risk health insurance pools. 
State risk pools serve as part of the health care safety net that have 
played an important role in offering insurance to the so-called 
medically ``uninsurable'' for as long as 25 years in some states. 
Today, they are operating in 29 states, all with caps on the level of 
premiums that can be charged people in the risk pool and each 
subsidized by the industry and/or with state funding. More studies are 
recognizing that risk pools provide a means of providing insurance 
access that causes far less disruption to the private individual 
insurance market compared to other alternatives, in particular 
guarantee issue regulations.
    The enrollment in risk pools is now steadily growing, as an 
outgrowth of declining coverage in the small group employer market 
forcing more people into the individual market, which these risk pools 
serve.
    Currently, federal regulations complicate the ability of states to 
fund their state risk pools equitably across the entire health 
insurance industry. Even though it would be a comparably small cost 
compared to other health care initiatives, federal financial support 
for risk pools to help them pay for increasing subsidies levels, and to 
help low income people in the state programs would be helpful.
    CA believes every state should have a risk pool for the medically 
uninsurable in place as part of their health safety net, and supports 
federal help to establish and fund these state-operated pools. For the 
first time, the financial support for state risk pools was included in 
the earlier economic stimulus legislation that passed the House, but 
failed to gain movement in the Senate. This was an important step, and 
we encourage Congress, as is considers broader ways to address the 
uninsured problem to include support for state risk pools so that we 
can expand them to more states and assist the 29 states that now have 
them.
    These recommendations aren't the answer to all of the problems of 
the uninsured. However, together they make up critical parts of the 
comprehensive approach that will be required to solve this problem.
                               __________

             Statement of the American Medical Association

    Mr. Chairman and members of the Committee, my name is J. Edward 
Hill, MD. I am the Chair-Elect of the American Medical Association's 
(AMA) Board of Trustees. I am also a board-certified family physician 
from Tupelo, Mississippi. I began my professional career in the rural 
Mississippi Delta, where I practiced for 27 years. On behalf of the 
medical student and physician members of the American Medical 
Association (AMA), we are honored to have been invited to discuss with 
this Committee the critical issue of access to health care in rural 
America.
Introduction
    The Secretary of the Department of Health and Human Services, Tommy 
Thompson, recently stated that ``[w]e want all Americans, regardless of 
where they live, to have an equal chance for a healthy life.'' The AMA 
strongly agrees with Secretary Thompson, and adds that improving health 
care access in underserved areas remains an ongoing concern and top 
priority for the entire AMA.
    Approximately 61.7 million United States residents (24.8% of the 
population) live in rural settings, according to the 1990 Census. In 
1999, 14.3% of rural Americans lived in poverty. The Centers for 
Disease Control and Prevention (CDC) recently reported that most rural 
counties have a statistically higher percentage of uninsured than 
nonrural counties, and their remains a ``relative scarcity of health 
care resources in nonmetro areas'' which is a ``continuing problem that 
is likely to have an enduring negative impact on health outcomes.''
    The CDC has also reported that nationally residents of the most 
rural counties have the highest death rates for children and young 
adults, the highest death rate for unintentional and motor vehicle 
traffic-related injuries, and among men, the highest mortality for 
ischemic heart disease and suicide. Moreover, rural county residents 
also experience the highest levels of adolescent smoking, are least 
likely to have adequate oral health care, have the fewest specialist 
physicians and dentists per capita, and adult rural county residents 
experience a higher incidence of activity limitations caused by chronic 
health conditions.
    Numerous factors have contributed to these significant disparities 
in health conditions for rural residents. As mentioned above, among the 
top causes is the relative scarcity of health care resources, or access 
to health care resources, including physicians. Despite more than 20% 
of the American population living in rural area, fewer than 11 percent 
of the nation's physicians are practicing in nonmetropolitan areas. 
Physician recruitment and retention in rural areas therefore remains a 
significant problem for rural residents. The high incidence of 
uninsurance also creates a major barrier for rural residents to access 
health care.
    In this Statement, we would like to highlight a few significant 
factors contributing to the problem of inadequate access to health care 
in rural America, and offer some proposed solutions.
Medicare Physician Payment Cuts Seriously Threaten Patient Access
    Effective January 1 of this year, Medicare payments for physicians' 
services were cut by 5.4 percent, and we are extremely concerned about 
the impact of these cuts on patient access. Rural areas, in particular, 
will be especially ``hard-hit'' by these cuts since these areas tend to 
have a much higher population of Medicare beneficiaries than in non-
rural areas. Two federal bills that would halt the cut (H.R. 3351 and 
S. 1707) have achieved super-majorities in the House and Senate.
    The 5.4 percent cut is the largest payment cut since the Medicare 
physician fee schedule was developed more than a decade ago, and is the 
fourth cut over the last eleven years. As recently as Sunday, March 17, 
the New York Times reported that ``significant numbers of doctors are 
refusing to take new Medicare patients, saying the government now pays 
them too little to cover the costs of caring for the elderly.'' Since 
1991, Medicare payments to physicians have averaged only a 1.1 percent 
annual increase, or 13 percent less than the annual increase in 
practice costs, as measured by the Medicare Economic Index (MEI). (See 
attached Chart 1, Medicare Payments vs. MEI, which compares Medicare 
physician payment updates to increases in inflation.)
    This cut applies to all Medicare services provided by nearly one 
million physicians and other health professionals, including, but not 
limited to, physical therapists, speech pathologists, optometrists, 
advanced practice nurses and podiatrists. In addition, many private 
health insurance plans base their rates and updates on Medicare payment 
rates, which mean an additional loss of revenue from non-Medicare 
sources.
    Most significantly, the payment cut jeopardizes access for elderly 
and disabled patients. Two-thirds of all physician offices are small 
businesses. If a business, especially a small business, continues to 
lose revenue and operates at a loss, the business cannot be sustained. 
Thus, when medical practices experience a Medicare cut of the magnitude 
being incurred in 2002, as small businesses, they may not survive. This 
means that physicians and non-physician practitioners and their staff 
are left with very few alternatives for maintaining a financially sound 
medical practice. These alternatives include:
          Discontinue seeing new Medicare patients;
          Opt out of the Medicare program;
         Move from being a participating to a non-participating 
        Medicare provider;
          Balance bill patients (subject to Medicare charge limits);
          Lay off administrative staff;
          Relocate to an area with a smaller Medicare patient 
        population;
          Discontinue certain low-payment/high-cost Medicare services;
          Shift services into the hospital outpatient setting, which 
        increases costs to Medicare and to patients;
          Limit or discontinue charity care;
          Retire early;
          Reduce hours of practice
          Change career;
          Shift into a position which involves reduced or no patient 
        care responsibilities; and
          Postpone or discontinue necessary investments in new 
        technology.
    These are not choices that physicians want to make. In each case 
our patients lose. As discussed above, these choices particularly 
impact patients in rural areas. For example, if a physician in a rural 
area discontinues seeing new Medicare patients, there may not be 
another physician in that area to see Medicare patients. In addition, 
if one or more physicians relocate from a rural area to another area 
with a smaller Medicare population, this could seriously diminish 
patient access. Finally, if physicians in rural areas leave the 
practice of medicine, patients in those areas, where physicians may 
already be in short supply, obviously would be greatly impacted.
    There are may reports that access is indeed being impacted by the 
5.4 percent cut. For example, the National Committee to Preserve Social 
Security and Medicare has stated that their members are having 
difficulty finding a physician who accepts Medicare because physicians 
cannot afford to keep their offices open. A cardiology group in 
Colorado is being forced to lay off employees and, in Texas, spine 
surgeons at Baylor University plan to stop taking Medicare patients.
    The American College of Nurse Practitioners warns that the pay cut 
is also forcing physicians and nurse practitioners to restrict their 
Medicare patient loads and cut back on the services they provide. 
Finally, recent press reports in many states also have documented the 
access problems resulting from the Medicare payment cut. Excerpts from 
these reports are as follows:
          ``As as result (of the 5.4% cut), doctors around the country 
        are finding themselves pinched. `If you continue to lose and 
        lose, there may be a time when we will have to limit services 
        or close one of our sites,' says Susan Turney, medical director 
        of reimbursement at Marshfield Clinic, of Marshfield, Wis., 
        which operates about 40 sites with 600 physicians. `In some 
        areas of Wisconsin, we're the only provider,' she adds.'' The 
        Wall Street Journal, Jan. 20, 2002 (Some Doctors Say They Stop 
        Seeing Medicare Patients After Cuts);
          ``Washington's health-care system is in serious decline, and 
        the prognosis is guarded. `Tests show the severity of the 
        problem,' said Tom Curry, executive director of the Washington 
        State Medical Association, which released a gloomy report in 
        Olympia. Responding to an informal poll of members in November, 
        57 percent of physicians said they are limiting the number or 
        dropping all Medicare patients from their practices. . . . The 
        report says that for many years the state's health-care 
        delivery system has been in decline, characterized by a slow 
        erosion of funding for public health, growing administrative 
        expenses for practitioners and mounting frustrations of 
        physicians trying to cope with myriad regulations. A growing 
        number of patients, even those with private insurance, are 
        having trouble finding a physician because increasing numbers 
        of doctors have been leaving the state or retiring early since 
        the late 1990s, the report says.'' Seattle Times, Jan. 30, 
        2002;
          ``Medicare reimbursement to doctors was cut 5.4 percent the 
        first of the month, worsening an already tight financial 
        situation for rural hospitals. . . . One result likely will be 
        a harder time recruiting doctors to rural areas. . . Medical 
        equipment purchases can suffer, staff cuts are more likely and 
        doctors sometimes will leave for better conditions elsewhere, 
        Bruning said (Dr. Gary Bruning of the Flandreau, South Dakota 
        Medical Clinic),'' Associated Press, Jan. 22, 2002 (Medicare 
        Cuts Strain Rural Health);
          ``Other West Virginia doctors fear their peers will stop 
        treating patients who have Medicare. . . .And some wonder how 
        they will recruit doctors to a medical environment marred by 
        the recent struggles over malpractice insurance. . . .At 
        Madison Medical PLLC in Boone County, three doctors treat at 
        least 80 patients a day. About 65 percent of them have 
        Medicare, said office management Phyllis Huffman. The cut in 
        Medicare reimbursement does not come at a good time, she said. 
        In the last two years, for example, the physician group's 
        malpractice insurance doubled. Huffman said she fears that in 
        the long run, the practice will not be able to afford to 
        replace a departing employee. Or they may have to stop offering 
        services for which they get little or no reimbursement from 
        Medicare.'' The Charleston Gazette, Jan. 23, 2002.
    Immediate action is needed to remedy these growing access problems, 
and we urge the Committee to support enactment of legislation that 
would--
          Immediately halt the 5.4 percent Medicare payment cut;
          Repeal the sustainable growth rate (SGR) system; and
          Replace the flawed Medicare payment update formula with a new 
        system that appropriately reflects increases in practice costs, 
        including changes in patient need for medical services, changes 
        in technology, and other relevant information and factors. 
        (H.R. 3882, introduced by Rep. Nancy Johnson (R-CT), would 
        accomplish this goal.)
Medicare Payment Advisory Commission Recommendations
    The Chair of the Medicare Payment Advisory Commission (MedPAC) told 
the House Ways and Means Committee of February 28th that ``maintaining 
access for Medicare beneficiaries and keeping physicians participating 
in the program and accepting new patients, will require that action be 
taken.'' Further, MedPAC warned in June 2001 that if the 2002 update 
was lower than the CMS estimate, which at that time was -0.1 percent, 
it ``could raise concerns about the adequacy of payments and 
beneficiary access to care.''
    Clearly, this year's 5.4 percent cut is significant, and it comes 
on top of sharp increases in professional liability premiums, as well 
as a host of costly regulatory burdens. And, the situation could become 
even more dire. CMS predicts that under the current system, the updates 
over the next three years will be, respectively,-5.7%.-5.7.% and -2.8%. 
This is roughly a 20 percent cut in Medicare payments over 4 years 
(2002 through 2005), and this number increases to almost 30 percent 
when you account for medical inflation. Moreover, the 2005 conversion 
factor predicted by CMS would be lower than the conversion factor in 
1993. Physicians will be paid less in 2005 than they were in 1993. A 20 
percent pay cut over four years would add to the already significant 
pressures on physicians to discontinue or limit the provision of 
services to Medicare patients.
    MedPAC has adopted a recommendation that Congress replace the 
current Medicare payment formula with one that more fully accounts for 
increases in practice costs. Specifically MedPAC advised Congress to 
repeal the SGR system because an expenditure target system, like the 
SGR, does not appropriately reflect increases in practice costs. MedPAC 
further recommended that furture updates be based on inflation in 
physician's practice costs, less an adjustment for multi-factor 
productivity. H.R. 3882, the `'Preserving Patient Access to Physicians 
Act of 2002'' introduced by Rep. Nancy Johnson (R-CT), would implement 
the MedPAC recommendations.
    We strongly agree with MedPAC's assessment and support the general 
framework of MedPAC's recommendations.
Medicare Physician Payment Update Formula
    Medicare payments to physicians are annually adjusted through the 
use of a legislated ``payment update formula'' this is based on the SGR 
and the MEI, which measures increases in practice costs. These costs 
include, among others, such factors as payroll, physician time, office 
equipment, supplies and expenses.
    This update formula originally was intended to cap increases in 
practice costs. It has several flaws that create inequitable and 
inappropriate payment updates that do not reflect the actual costs of 
providing medical services to Medicare patients.
The Sustainable Growth Rate System
    Under the SGR system, CMS annually establishes an expenditure 
target for physicians' services based on a number of factors set forth 
in law. CMS then compares actual expenditures to the target. If actual 
expenditures exceed the target, the Medicare payment update may be as 
much as 7 percent below the MEI. Conversely, if allowed expenditures 
are less than actual expenditures, the update may be up to 3 percent 
above the MEI.
    The target is based on changes in expenditures for physicians' 
services due to changes in (i) inflation, (ii) fee-for-service 
enrollment, (iii) gross domestic product (GPD), and (iv) laws and 
regulations. It is a highly unpredictable and unstable system that has 
as number of critical flaws:
    GDP Does Not Measure Health Care Needs: The SGR system permits 
beneficiary Medicare spending for physicians' services to increase by 
only as much as real per capita GDP growth--a measure of the economy 
that bears little relationship to the health needs of Medicare 
beneficiaries. Incidence of disease did not lessen with recent 
downturns in the economy.
    Specifically, GDP does not take into account health status, the 
aging of the Medicare population or the costs of technological 
innovations. Thus, the artificial link between medical care spending 
and GDP growth under the SGR system creates a system that is seriously 
deficient. Unlike any other segment of the health care industry, 
physicians are being penalized with a steep Medicare cut this year 
largely because the economy has slowed. Yet the health needs of 
patients continue, the number of beneficiaries continues to grow and 
the use of new medical services approved by Medicare increases.
    SGR Requires Unreliable Economic Forecasts: To calculate the SGR, 
CMS must make projections of GDP, enrollment and other factors. It is 
nearly impossible to make accurate predictions about these factors and 
thus it is equally impossible to accurately predict future payment 
updates. When the resource-based physician payment system was first 
enacted in 1989, it was intended to provide predictability over time. 
Yet, the current update formula has created payment updates that are 
unpredictable and subject to sharp swings as economic circumstances, 
beyond physicians' control, change.
    Futher, because the update system is unpredictable, servere payment 
cuts may be imposed without any warning or opportunity for action by 
Congress. In March 2001, for example, CMS predicted that the Medicare 
payment update for 2002 would be a 1.8 percent increase. Ten days 
later, CMS reversed itself and stated that the 2002 update would likely 
be a 0.1 percent decrease. Finally, not until November, only eight 
weeks before the effective date of the 2002 update and with only a few 
weeks left in the Congressional session, CMS announced that the 2002 
physician payment update would be a 5.4 percent cut. Like any small 
businesses, medical practices need to plan their expenses in order to 
remain financially sound. Small business are the engine of the U.S. 
economy.
    For these reasons, as MedPAC has recognized, the current physician 
payment update system should be replaced.
    Problems with SGR Projections: In annually calculating the SGR, CMS 
estimates of GDP growth and enrollment changes in 1998 and 1999 have 
shortchanged funding for physicians' services by $20 billion to date. 
(See attached Chart 2, CMS Errors in SGR: Impact on Funding for 
Physician Services). CMS projected that Medicare+Choice enrollment 
would rise by 29 percent in 1999, even though many HMOs were abandoning 
Medicare. In fact, as accurate data later showed, managed care 
enrollment increased only 11 percent in 1999, a difference of about 1 
million beneficiaries. This means that when CMS determined the fee-for-
service spending target for 1999, it did not included in the costs of 
treating about 1 million beneficiaries. Nevertheless, these patients 
were and will continue to be treated, and since the SGR is a cumulative 
system, each year since 1999, the costs of treating these 1 million 
patients have been and will continue to be included in actual Medicare 
program expenditures, but not in the SGR target. Clearly, this 
disparity should be remedied.
    CMS acknowledged its mistakes in calculating the 1998 and 1999 SGR 
estimates at that time, but concluded it did not have the authority 
under the law to correct its mistakes. We disagreed then, and were 
further shocked by CMS' announcement in the 2002 final physician fee 
schedule rule that not only do they have the legal authority, but the 
legal imperative, to change 1998 and1999 SGR projections relating to 
spending for certain CPT codes overlooked by the agency. CMS' 
interpretation of the law is perplexing and seems to allow the agency 
to make SGR changes only when they result in Medicare payment cuts, but 
not when the same changes would increase payments.
    The full magnitude of this problem has only recently become 
apparent. Information supplied by CMS suggests that the total amount of 
this latest ``missing code'' error was nearly $5 billion. Recent 
predictions by CMS of continued payment cuts for several more years 
show that its decision to continue using bad data in the target while 
correcting the errors in actual spending will ultimately have a 
devastating impact on payments for physician services.
Flawed Productivity Adjustment Under the Medicare Economic Index.
    In the early 1970s, pursuant to congressional directive, CMS 
developed the MEI to measure increases in physician practice costs. A 
key component of the MEI has been a ``productivity adjustment,'' which 
offsets practice cost increases. Over the last eleven years, CMS 
estimates of productivity gains have reduced annual increases in the 
MEI by 27 percent. Such estimates contrast with MedPAC estimates of the 
degree to which productivity gains offset hospitals' cost increases. In 
fact, in 2001, MedPAC's estimate for hospitals was--0.5 percent, while 
CMS' estimate for physicians was--1.4 percent. It is highly improbable 
that physician practices could achieve such substantial productivity 
gains in comparison to hospitals, which arguably have a much greater 
opportunity to utilize economies of scale.
    In recommending a framework for future payment updates, MedPAC is 
advising that the MEI should simply measure inflation in practice costs 
and that productivity should be separately reported. MedPAC further 
recommends that the productivity adjustment be based on multi-factor 
productivity instead of labor productivity, and estimates that this 
would significantly reduce the productivity adjustment that CMS 
currently uses in updating the Medicare fee schedule.
Cost of New Technology Not Taken Into Account
    Unlike most other Medicare payment methodologies, the Medicare 
physician update system does not make appropriate adjustments to 
accommodate new technology, and thus physicians essentially are 
required to absorb much of the cost of technological innovations. 
Technological change in medicine shows no sign of abating, and the 
physician payment update system should take technology into account to 
assure Medicare beneficiaries continued access to mainstream, quality 
medical care.
    All of the foregoing factors contribute to a payment update system 
that does not adequately reflect increases in the costs of caring for 
Medicare patients and is already undermining Medicare patients' access 
to necessary medical services provided by physicians and other health 
professionals.
    In addition to remedying problems associated with the payment 
update system, to improve physician retention and recruitment in rural 
areas the AMA has, among other proposals, supported changes in the 
scholarship and educational loan repayment provisions of the National 
Health Service Corps (NHSC).

                     National Health Service Corps

    Practicing in medically underserved communities is an altruistic 
goal of many medical school students. However, the typical medical 
student departs from medical school with an average of $97,750 in 
student loan debt. This is a tremendous hardship for any recent 
graduate, but it is an especially difficult predicament for those 
wishing to provide quality, primary medical care to the 61.7 million 
individuals living in rural American where reimbursement levels are 
below the national norms.
    The AMA has been a long time supporter of the NHSC, program that 
recruits and retains primary care physicians and other healthcare 
providers into underserved rural areas within our great nation. The AMA 
is committed to the continuation of the NHSC and its objectives. 
Intrinsic within the NHSC's ability to provide access to primary health 
care to our Nation's underserved population is permanent and increased 
funding by the federal government.
An Opportunity for Physicians and Health Care Providers to Pursue a 
        Calling to Provide Medical Care to the Rural Underserved 
        Population
    In 1970, Congress created the NHSC to encourage physicians and 
other health care professionals to serve communities that are 
designated as too poor, sparsely populated, or remote to attract such 
professionals. Currently there are over 3,000 federally designated 
health professional shortage areas (HPSA). Initially, the NHSC was 
comprised of Public Health Service Commissioned corps officers or 
federal employees. To increase the number of physicians and health care 
providers, the corps established incentive programs. Such programs 
include the NHSC Scholarship program and the repayment of school loans. 
In exchange for these benefits, the student or health care provider 
agrees to practice in isolated areas for a period of two to four years.
    The NHSC recruits, prepares, and supports dedicated students and 
clinicians through a variety of programs and services. The goal is not 
only to recruit physicians and health care professionals to remote 
areas, but to retain them in these areas. To date, more than 50% of 
physicians and health care providers remain in underserved areas.
Committed to Providing Health Care to the Rural Underserved
    A HPSA is a geographic area, population group, or medical facility 
that has been designated by the secretary of the Department of Health 
and Human Services (HSS) as having a shortage of health professionals. 
There are HPSAs for primary health care, dental health and mental 
health. HPSAs are assigned a numerical score based on the level of 
need.
    Individuals living in HPSAs are spread across our Nation and its 
territories and have little or no access to primary health care 
services. The NHSC works with communities and health care facilities 
with the greatest need and serves these individuals regardless of their 
ability to pay for services.
Funding Must Continue
    The results of NHSC have been proven. More than 2,300 NHSC 
clinicians provide primary and preventive health care to some 3.6 
million people in rural and urban American communities.
    However, the need for health care providers in rural America 
remains great in order to reach the myriad individuals that are not yet 
served by NHSC physicians and health care professionals.
    The NHSC's authorization has expired. It is vital that this program 
be reauthorized so that it can continue to offer access to essential 
health care services to the nation's most underserved people.
    HHS Secretary, Tommy G. Thompson recently announced that in 2002 
the NHSC will offer $89.4 million in scholarship and loan repayments to 
physicians and other health care providers who serve in areas that lack 
adequate access to care. This increase of almost $19 million over last 
year's finding will support 900 new and continuing loan repayment 
awards and 400 new and continuing scholarship awards.
    Additionally, President Bush has proposed a 32% increase in the 
NHSC's budget for 2003. This would increase 2002's total funding of 
$145.5 million to $192 million in 2003. The President's proposed 
funding is extremely important to the millions of individuals who will 
be well served through the NHSC's preservation and growth.

        addressing the problem of the uninsured in rural america

    As your Subcommittee has indicated, ``small business owners, 
employees, and their dependents account for over 60% of the uninsured 
population, and this problem greatly impacts rural small businesses. Of 
added importance for rural states, the ability of small business owners 
to obtain and provide affordable health insurance for their employees 
is a crucial component to rural states' efforts to attract new jobs and 
prevent population loss.'' The AMA completely agrees with your 
Subcommittee's assessment of the impact of the ``uninsured'' on rural 
communities. We believe that the AMA proposal for addressing the 
problem of the uninsured would greatly benefit rural America.
    According to the most recent Census Bureau figures released in 
September 2001, a staggering 39 million Americans lacked health 
insurance in 2000. New data show that 2 million Americans became 
uninsured in 2001, due primarily to job loss. Twenty-one percent of 
rural residents are uninsured. As these numbers remain high, health 
care costs continue to rise. The Center for Studying Health System 
Change just reported that health care costs rose 7.2 percent in 2000, 
representing the largest increase in a decade. In 2001, premiums for 
employer-sponsored coverage rose 11 percent.
    Studies have also demonstrated that individuals who lack health 
insurance forego needed medical care and are sicker when they do seek 
care. They visit emergency rooms and are admitted to hospitals in 
disproportionate amounts, raising the medical care costs which are then 
passed on to an already overburdened system. As a result, the already 
overburdened health care system is forced to bear even higher costs to 
care for these Americans.
    Lacking health insurance, moreover, has a direct effect on the 
health of those uninsured. Consider, for instance, that uninsured women 
with breast cancer are twice as likely to die of cancer as women who 
have health insurance. Uninsured men are nearly twice as likely to be 
diagnosed at a later--and potentially more deadly--stage for colon 
cancer as men with health insurance.
    Most of the uninsured are employed--61% are full time workers and 
84% are in families headed by a worker. With only two-thirds of non-
elderly Americans (those aged 64 and younger) covered for medical 
expenses by an employer benefit plan, it is time to rethink health 
insurance.
A Proposed Solution
    President Bush recently submitted to Congress his fiscal year 2003 
budget which included a proposal for refundable, advanceable tax 
credits for the purpose of health insurance. The proposal would provide 
a $1,000 tax credit for individuals, and up to a $3,000 tax credit for 
families. These tax credits would be offered to low- and middle-income 
American families who do not have employer-subsidized insurance. The 
AMA applauds President Bush for his innovative proposal and believes it 
is an excellent step toward expanding coverage as well as encouraging 
individual choice and ownership of health coverage.
    The AMA has long advocated for a health care system in which every 
American has health insurance. We propose health care finance reform 
which would dramatically increase the number of Americans with health 
insurance coverage while putting patients first in choosing an 
insurance package that best meets their needs. We suggest the offering 
of refundable health care tax credits for individuals, the promotion of 
individual selection and ownership of coverage, the use of health 
insurance marts, and the development of defend contributions from 
employers.
    The ultimate solution is to encourage individual ownership and 
selection of health insurance as well as expand coverage to low-income 
workers who currently cannot afford coverage.
Summary of the AMA Proposal--Benefiting the Employee
    Currently, the Federal government subsidizes the purchase of 
private health insurance by excluding from taxable income the portion 
of an employee's total compensation that the employer gives in the form 
of health benefits. The tax exclusion is sometimes loosely referred to 
as a tax exemption or deduction. In contrast with the tax exclusion for 
employment-based health insurance, health insurance tax credits--
available only to those who obtain health insurance--would be 
subtracted from the individual's tax bill.
    The cornerstone of our proposed plan is a system of individual tax 
credits for the purchase of health insurance that are refundable and 
income-related. The AMA would replace the current tax exclusion for 
health insurance with a tax credit for the purchase of health 
insurance. Among the core elements to the AMA plan are the following:
Converting to a Refundable Tax Credit System
    The current tax exclusion must first be converted to a tax credit 
for those who purchase health coverage, whether or not they receive 
health benefits from their employer. The tax credits should be 
inversely related to income; that is, larger credits should be 
available to families and individuals in the lower tax brackets. The 
size of the tax credits should also be large enough to ensure that 
health insurance is affordable for most people. The credits must at 
least be sufficient to cover a substantial portion to the premium costs 
for individuals in the low-income categories. In addition, the tax 
credits should be ``refundable'' so those who do not earn enough to owe 
taxes can still claim a credit.
    The current tax exclusion is inequitable because it provides a 
higher subsidy for those with higher incomes. Moreover, a large portion 
of the 39 million uninsured Americans arelow-income wage earners who 
are not eligible for Medicaid. Under the AMA plan, the tax subsidy 
would be redirected toward those who need it most. Furthermore, 
compared to a tax credit that does not vary with income, a sliding 
scale tax credit reduces the federal spending necessary to expand 
coverage.
Reforming the Individual Health Insurance Market
    The individual health insurance market must be reformed to create 
new opportunities for individuals to pool risks, obtain ``group'' 
insurance at lower rates and choose among a variety of plans to suit 
their individual insurance needs. To achieve this goal, the AMA 
supports federal legislation enabling the formation of ``Health 
Insurance Marts'' by various groups that could include coalitions of 
small employers, unions, trade associations, voluntary health insurance 
cooperatives, chambers of commerce and other community organizations.
Protecting Vulnerable Populations
    Vulnerable populations must also be protected. One way to protect 
some of those populations would be by intensifying outreach efforts to 
ensure that the five million children and adults who are currently 
eligible are enrolled in Medicaid and the Children's Health Insurance 
Program (CHIP).
The AMA Proposal Would Also Benefit Rural Employers
    The AMA's proposal for reforming the American system of health care 
financing would provide many significant benefits to employers, as well 
as employees. Under the current system, most employers provide a 
significant part of their workers' compensation in the form of health 
care benefits which are tax subsidized. Payments for such benefits are 
made through periodic withholding of money from paychecks rather than 
in a lump sum, and the costs of those benefits to employers are 
deductible as a legitimate business expense--a cost of doing business.
    Under our proposal, all of these features would remain, except that 
the employee--not the employer--would choose the health plan, and the 
tax benefit for the employee, as explained above, would be in the form 
of an (inversely) income-related, refundable tax credit rather than a 
tax exclusion. The tax status for the employer costs of those benefits 
would not change; those costs would remain a deductible business 
expense. The employer's business operations also would not change--
withholding for taxes and the employee shares of benefits would 
continue.
    Rural employers who currently offer health benefits do so 
voluntarily in order to attract and retain workers, and this would 
continue to be the case. Some employers would likely decide to change 
their health benefits to defined contributions. In those cases, instead 
of continuing to arrange and offer specific health plans, the employer 
would contribute a certain dollar amount (defined contribution) toward 
the employee's choice of plan. Under a defined contribution program, 
employers' health benefits costs would become more predictable. 
Employees would be able to combine defined contributions from their 
employer with tax credits to obtain group coverage through health 
insurance marts.
    Because employees would have both choice and ownership of their own 
health expense coverage for no increase in cost, employers could offer 
their employees better health benefit products. Employees could choose 
the health plan that would best suit their needs, and they would not 
have to switch every year or so (as they do under the present system) 
simply because their employer may switch to a different carrier. As a 
result, for the same deductible business cost, firms could improve 
worker retention.
    Under this proposal, employers would not need to pay for human 
resources staff to solicit and examine health insurance offerings and 
negotiate contracts, because employees would make their health plan 
choices through a health insurance mart. Those resources could be 
retooled into providing additional counseling for employees on their 
health plan choices or they could be turned into additional profits. 
Either way, the employer would benefit.
    Employers and employees would also benefit if employees had a wider 
range of choices when selecting plans and physicians and could remain 
with the plans and physicians they selected as they moved from one job 
to another. Employees would receive continuous, and more consistent 
medical treatment, at a lower expense than they would receive by 
repeatedly switching plans and physicians. As a result, employees would 
likely remain healthier, and would overall be more productive workers.
    Further, because employees would become more price sensitive, those 
employees would switch away from plans with high cost increases. In 
turn, health plans would be more cautious about demanding increases in 
premiums--potentially saving more money for employers and employees. 
Health care inflation may well continue, but at a lower level.
    To ensure that these proposed changes in the health care finance 
system would in fact benefit the uninsured, the AMA has created several 
tax simulation models incorporating these changes. These models have 
consistently demonstrated that the AMA's proposal would significantly 
expand health insurance coverage.
    We have previously shared with the Congress an AMA publication 
further detailing our proposal to increase the number of Americans with 
health insurance entitled, ``Expanding Health Insurance: The AMA 
Proposal for Reform.'' We would like to make that publication again 
available to the members of this Subcommittee, with the hope it will 
prove helpful to you as you consider this subject.

                 title vii--training family physicians

    As a last point, we would like to bring to this Subcommittee's 
attention a concern of ours which if left unheeded will likely further 
reduce health care access for rural residents. Title VII of the Public 
Health Service Act, Section 747, authorizes appropriations for family 
medicine, general internal medicine and general pediatrics, physician 
assistants and general and pediatric dentistry. The Section 747 program 
is the only federal program that supports family medicine training 
programs at the undergraduate and graduate levels. The program's goal 
is to increase the number of primary care physicians and increase the 
number of health care providers--including physicians--to provide 
health care to the underserved.
    We raise this issue at this time because the President's FY 2003 
budget would zero out funding for the Primary Care Medicine and 
Dentistry cluster. In addition, the budget proposal would cut the 
current funding level for all of the Health Professions programs by 75 
percent to only $94 million. Despite language in the proposal claiming 
that ``most of the health professions grants have not proven effective 
because they do not accurately address current health professions 
problems,'' we can attest that Title VII funds are effective in 
addressing major health profession problems and improving access to 
health care in underserved, including rural, areas. We urge Congress to 
reauthorize full funding for Section 747 of Title VII.

                               conclusion

    Thank you again for the opportunity to submit our thoughts and 
suggestions regarding access to health care in rural America. The AMA 
offers this Committee and the Administration our assistance and 
resources in finding solutions to this critical issue.

[GRAPHIC] [TIFF OMITTED] 79326.002

[GRAPHIC] [TIFF OMITTED] 79326.003

                                 
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