[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
MEDICARE PAYMENT ADVISORY COMMISSION'S
ANNUAL MARCH REPORT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MARCH 1, 2007
__________
Serial No. 110-16
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
CHARLES B. RANGEL, New York, Chairman
FORTNEY PETE STARK, California JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan WALLY HERGER, California
JIM MCDERMOTT, Washington DAVE CAMP, Michigan
JOHN LEWIS, Georgia JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee JERRY WELLER, Illinois
XAVIER BECERRA, California KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas RON LEWIS, Kentucky
EARL POMEROY, North Dakota KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon DEVIN NUNES, California
RON KIND, Wisconsin PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
Janice Mays, Chief Counsel and Staff Director
Brett Loper, Minority Staff Director
______
SUBCOMMITTEE ON HEALTH
FORTNEY PETE STARK, California, Chairman
LLOYD DOGGETT, Texas DAVE CAMP, Michigan
MIKE THOMPSON, California SAM JOHNSON, Texas
RAHM EMANUEL, Illinois JIM RAMSTAD, Minnesota
XAVIER BECERRA, California PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota KENNY HULSHOF, Missouri
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
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unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
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C O N T E N T S
__________
Page
Advisory of February 22, 2007, announcing the hearing............ 2
WITNESS
Glenn M. Hackbarth, J.D., Chairman, Medicare Payment Advisory
Commission..................................................... 4
SUBMISSIONS FOR THE RECORD
Alliance for Quality Nursing Home Care, statement................ 27
American Hospital Association, statement......................... 32
Mid-Florida Cardiology Specialists, Orlando, FL, statement....... 34
National Association for Home Care and Hospice, statement........ 34
Yarwood, Bruce, statement........................................ 37
MEDICARE PAYMENT ADVISORY COMMISSION'S
ANNUAL MARCH REPORT
----------
THURSDAY, MARCH 1, 2007
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:06 p.m., in
Room 1102, Longworth House Office Building, Hon. Fortney Pete
Stark (Chairman of the Subcommittee), presiding.
[The advisory announcing the hearing follows:]
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
February 22, 2007
HL-2
Chairman Stark Announces a Hearing on
MedPAC's Annual March Report with
MedPAC Chairman Glenn M. Hackbarth
House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA)
announced today that the Subcommittee on Health will hold a hearing on
the Medicare Payment Advisory Commission's (MedPAC) annual March report
on Medicare payment policies with MedPAC Chairman Glenn M. Hackbarth.
The hearing will take place at 2:00 p.m. on Thursday, March 1, 2007, in
Room 1100, Longworth House Office Building.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from the invited witness only.
However, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
MedPAC advises Congress on Medicare payment policies. MedPAC is
required by law to submit its annual advice and recommendations on
Medicare payment policies by March 1, and an additional report on
issues facing Medicare by June 15. In its reports to the Congress,
MedPAC is required to review and make recommendations on payment
policies for specific provider groups, including Medicare Advantage,
hospitals, skilled nursing facilities, physicians, and other sectors,
and to examine other issues regarding access, quality, and delivery of
healthcare.
In announcing the hearing, Chairman Stark said, ``Through its
annual reports, MedPAC provides the careful analysis that Congress
needs to make appropriate adjustments to Medicare payments. MedPAC's
recommendations help Medicare remain a reliable partner to providers,
while also assuring
that beneficiaries and taxpayers are getting the best value for their mo
ney.''
FOCUS OF THE HEARING:
The hearing will focus on MedPAC's March 2007 Report to Congress.
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noted above.
Chairman STARK. We will begin. We will welcome Glenn
Hackbarth, the Chairman of the Medicare Payment Advisory
Commission, known as MedPAC. Glenn, it is good to have you back
with us, and we look forward to your analysis. I am sure we
each look forward to some of your recommendations, and we
appreciate the work that your staff and the commissioners do in
advising us and how you remain as objective as you can in this
area. We really do appreciate it.
I am not going to say a lot. I am going to ask you to go
through your recommendations and I am going to ask my
colleagues to indulge me. We will have a vote, I think, around
2:30, a couple of them. Five votes, okay, but I am going to
suggest that Members, as Mr. Hackbarth goes through the
recommendations--I will be happy to indulge them in making an
inquiry as he goes along, but I really want to hold it to an
inquiry, like 30 seconds for a technical question; no speeches
about does red wine improve your health.
Mr. THOMPSON. This is Congress.
Chairman STARK. I know, all right. We will save the
speeches, as we go through, almost like a walk-through. Glenn
has suggested that he would accommodate us in that. Maybe that
will help us as we move along.
So, without further ado, I recognize Dave Camp for any
comments he would like to make, and then we will look forward
to Mr. Hackbarth's statement.
Mr. CAMP. Well, thank you, Mr. Chairman. I know we have got
a vote coming up, and in the interest of getting started, I
will submit my statement for the record, but I do want to
welcome Chairman Hackbarth. Thank you for joining us to discuss
MedPAC's annual report. I also want to thank Mark Miller and
the staff for their hard work on this report as well.
We do rely on your payment recommendations for Medicare
providers. Also we have seen recent and rapid growth in
Medicare in past years. So, I look forward to hearing your
analysis and want to thank you again for appearing before the
Committee.
Thank you, Mr. Chairman.
Chairman STARK. Glenn, why don't you proceed any way you
would like?
STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN, MEDICARE
PAYMENT ADVISORY COMMISSION
Mr. HACKBARTH. Thank you, Chairman Stark and Mr. Camp,
other Members of the Committee. It is a pleasure to be here to
talk about our annual March report to Congress on Medicare.
Before I start into the substance, let me just second what
you said about the MedPAC staff. It is a terrific staff, and a
real resource not just for me but for the Congress and more
broadly. We are all very lucky.
Before briefly reviewing the recommendations and findings,
I would like to just quickly remind you about the Commission
and who sits on it. As you know, we have 17 members on the
Commission. Seven of the members are trained as clinicians,
either physicians or nurses. We have eight members who have
executive level or board experience in healthcare delivery
organizations, five with executive level experience in
healthcare purchasing organizations, and seven of us have high-
level Government experience, either in Congress or at support
agencies or the executive branch. Some of us have more than one
of these credentials.
In short, we have a longstanding interest, each of us, in
the Medicare program, a stake in its success as well as
considerable experience with it. The diversity of the
Commission is one of its strengths. It also presents a
challenge, and that is to weave the various points of view and
expertise into consensus recommendations.
As Chairman, I strive very hard to do that, and believe
that a consensus recommendation is much more useful to you, the
Congress, than one that reflects a narrow majority. Of the
recommendations in this year's March report, and there are nine
of them, we had a total of 126 recorded votes by individual
commissioners, only two of those were dissenting votes and one
abstention. So, we have succeeded again this year to a very
substantial degree in providing you with consensus
recommendations from this diverse commission.
Seven of the nine recommendations in our March report
relate to payment updates. As you well know, that is one of our
basic responsibilities under our governing statute. One of the
recommendations pertains to payment, the Indirect Medical
Education Payment to hospitals, and one pertains to collecting
uncompensated care data which could guide reform of the
Disproportionate Share Hospital (DSH) payment adjustment for
hospitals.
In addition, in our March report we review past
recommendations from MedPAC on Medicare Advantage and Part D as
well as present some new data on those aspects of the Medicare
program.
Let me just talk for a minute about how we approach the
task of recommending payment updates each year. In formulating
those recommendations, we assess Medicare's payment adequacy
for each of the respective provider groups, hospitals,
physicians, dialysis facilities, post-acute providers and so
on. We assess adequacy by reviewing all of the available data
we can find on issues like access to care for Medicare
beneficiaries, the quality of that care, changes in the volume
of services provided, access to capital for the providers of
the services and Medicare margins where those data are
available.
As required by our governing statute, we seek to recommend
rates that are adequate for ``efficient providers of service.''
Consistent with that efficient provider requirement, we begin
our analysis with an expectation that healthcare providers
should improve productivity each year. Thus very often,
although not always, our recommendations are cast in terms of
increasing rates by the relevant measure of input price
increases minus a productivity adjustment.
Our seven update recommendations in this year's report are
as follows. For physicians and dialysis facilities, our
recommendation is the increase in market basket minus
productivity adjustment. For post-acute care providers,
specifically skilled nursing facilities, home health agencies
and long-term care hospitals, we recommend no update in the
rates. Then for inpatient rehab facilities, a one percent
increase. Finally, for hospitals we recommend a full market
basket increase in the rates, but also recommend that
concurrently that we should move to implement a pay-for-
performance program for hospitals.
Finally, with regard to the Indirect Medical Education
adjustment, we recommend that that adjustment be reduced by one
percentage point, concurrent with implementation of a credible
severity adjustment system in the Medicare hospital payment
system.
Then finally, the last recommendation is that the Centers
for Medicare and Medicaid Services (CMS) collect uncompensated
care data which might subsequently be used to guide reform of
the disproportionate share of hospital payment adjustment.
So, that is a very quick summary, Mr. Chairman. I would be
happy to take your questions.
[The prepared statement of Mr. Hackbarth follows:]
Prepared Statement of Glenn M. Hackbarth, J.D., Chairman,
Medicare Payment Advisory Commission
Chairman Stark, Ranking Member Camp, distinguished Subcommittee
Members. I am Glenn Hackbarth, chairman of the Medicare Payment
Advisory Commission (MedPAC). I appreciate the opportunity to be here
with you this afternoon to discuss MedPAC's March Report to the
Congress and our recommendations on Medicare payment policy.
The Commission has become increasingly concerned with the trend of
higher Medicare spending without a commensurate increase in value to
the program. (An increase in value would be, for example, beneficiaries
receiving higher quality services with no increase in spending.) That
trend, combined with the retirement of the baby boomers and Medicare's
new prescription drug benefit, will, if unchecked, result in the
Medicare program absorbing unprecedented shares of the GDP and of
Federal spending. Policymakers need to take steps now to slow growth in
Medicare spending and encourage greater efficiency from healthcare
providers, while assuring access and maintaining or improving quality.
In our March report to the Congress, we review Medicare fee-for-
service payment systems for eight sectors: hospital inpatient, hospital
outpatient, physician, outpatient dialysis, skilled nursing, home
health, inpatient rehabilitation facilities (IRFs), and long-term care
hospitals (LTCHs). The Commission recommends changes to payment and
other policies designed to make payments more accurate and to improve
the value received by beneficiaries and taxpayers for their
expenditures on healthcare.
Our March report also reviews recent findings and past
recommendations on the Medicare Advantage (MA) plans beneficiaries can
join in lieu of traditional fee-for-service Medicare, and the private
plans offering the new prescription drug benefit. We express our
support for the MA program, but also our concern that payments for
private plans are higher than the amount traditional Medicare would
have spent on the same beneficiaries. We also provide information on
the enrollment, benefits and premiums of the plans offering the new
prescription drug benefit, both the stand-alone prescription drug plans
and the prescription drug plans affiliated with MA plans.
Medicare should exert continued financial pressure on providers to
control their costs, much as would happen in a competitive marketplace.
We have found, for example, that hospitals under financial pressure
tend to control cost growth better than those that have non-Medicare
revenues that greatly exceed their costs. In all sectors, Medicare
should also adjust payments for quality, paying more for high quality
and less for poor quality. The Commission is striving to pursue
innovative means to increase value in Medicare while maintaining
financial pressure in all of its payment systems to restrain costs.
Context for Medicare payment policy
Medicare was designed to help ensure access to medically necessary
care for the aged and disabled. Many analysts give Medicare credit for
improving the economic position of its beneficiaries. Today, however,
Medicare and other purchasers of healthcare in our nation face enormous
challenges for the future. One challenge relates to the wide variation
in the quality and use of services within our healthcare system, with
quality often bearing no relationship or even a negative relationship
to spending. Analysts point to geographic variation in spending as
evidence of inefficiency and waste. Although spending is rising it is
not clear that beneficiaries are seeing commensurate increases in the
quality of their care or their health. A second challenge is that, as
is true for other purchasers of healthcare, Medicare's spending has
been growing much faster than the economy. In Medicare, forces such as
the broad use of newer medical technologies and enrollment growth will
likely push future spending higher. Because of these forces, the
Commission warns of a serious mismatch between the benefits and
payments the program currently provides and the financial resources
available for the future.
Figure 1 shows the Medicare trustees view of the future of Medicare
financing. Total expenditures for Medicare will take up an increasing
share of the nation's GDP and quickly exceed dedicated financing. In
their most recent report, the Medicare trustees project that, under
intermediate assumptions, the hospital insurance (HI) trust fund (which
finances Part A of Medicare) will be exhausted in 2018. Because
Medicare cannot pay for Part A services once the HI trust fund is
exhausted, either those expenditures will have to cease or some new
source of financing will have to be found. For other parts of Medicare
(Part B and Part D), general tax revenues and premiums automatically
increase with expenditures. Those automatic increases will impose a
significant financial liability on Medicare beneficiaries, who must pay
premiums and cost sharing, and on taxpayers in general. For example, if
income taxes remain at their historical average share of the economy,
the Medicare trustees estimate that the program's share of personal and
corporate income tax revenue would rise from 10 percent today to 24
percent by 2030 and to 40 percent by 2080.
Figure 1. Medicare faces serious challenges with long-term financing
[GRAPHIC] [TIFF OMITTED] T6780A.001
Note: GDP (gross domestic product), HI (Hospital Insurance). Tax on
benefits refers to income taxes that higher income individuals pay on
Social Security benefits that are designated for Medicare. State
transfers (often called the Part D ``clawback'') refer to payments from
the States to Medicare for assuming primary responsibility for
prescription drug spending.
Source: 2006 annual report of the Boards of Trustees of the
Medicare trust funds.
Strategies to help ensure a more sustainable Medicare program
include using payment policy to obtain greater value (that is, higher
quality using fewer resources or restraining unnecessary spending),
increasing the program's financing, and restructuring Medicare's
benefits and supplemental coverage. Policymakers will need to use a
combination of approaches to address Medicare's long-term
sustainability. Since Medicare heavily influences many aspects of
healthcare, policymakers should keep in mind that the program could
play a leading role in initiating some types of change. At the same
time, broad trends in the healthcare system affect the environment in
which it operates, and Medicare needs to work in collaboration with
private sector payers who face similar pressures from growth in health
spending.
Assessing payment adequacy and updating payments in fee-for-service
Medicare
The Commission recommends payment updates for 2008 and other policy
changes for fee-for-service Medicare. An update is the amount (usually
expressed as a percentage change) by which the base payment for all
providers in a prospective payment system is changed. To help determine
the appropriate level of aggregate funding for a given payment system,
the Commission considers whether current Medicare payments are adequate
by examining information about beneficiaries' access to care; changes
in provider supply and capacity; volume and quality of care; providers'
access to capital; and, where available, the relationship of Medicare
payments to providers' costs. Ideally, Medicare's payments should not
exceed the costs of the efficient providers. Efficient providers use
fewer inputs to produce quality services. We then account for expected
cost changes in the next payment year, such as those resulting from
changes in input prices.
Improvements in productivity reduce providers' costs in the coming
year. Medicare's payment systems should encourage providers to reduce
the quantity of inputs required to produce a unit of service by at
least a modest amount each year while maintaining service quality.
Thus, in most cases where payments are adequate, some amount
representing productivity improvement should be subtracted from the
initial update value, which is usually an estimate of the change in
input prices. Consequently, we apply a policy goal for improvement in
productivity (the 10-year average of productivity gains in the general
economy, 1.3 percent for 2008). This factor links Medicare's
expectations for efficiency to the gains achieved by the firms and
workers who pay taxes that fund Medicare. Competitive markets demand
continual improvements in productivity from these workers and firms; as
a prudent purchaser, Medicare should expect the same of healthcare
providers.
Hospital inpatient and outpatient services
Most indicators of payment adequacy for hospitals are positive.
More Medicare-participating hospitals have opened than closed in recent
years. Inpatient and outpatient service volume continues to increase
but at reduced rates of growth in 2005 and into 2006. The quality of
care hospitals provide to Medicare beneficiaries is generally
improving. Spending on hospital construction increased substantially in
recent years while the median values of several financial indicators
(such as measures of debt service coverage) reached their best value
ever recorded in 2005.
Hospitals with consistently lower Medicare margins (the excess of
payments over costs divided by payments) over the last 3 years tend to
have higher private payer payments. Those higher payments allow those
hospitals to continue to have higher costs, and thus they are under
less pressure to control costs. Table 1 shows that hospitals with
consistently low Medicare margins over the last 3 years had revenues
from non-Medicare payers that were 1.16 times the hospitals' costs for
providing the services. Conversely, hospitals with consistently high
Medicare margins had non-Medicare revenues just under their costs.
Those hospitals were under pressure to control their costs and did so
more successfully, with costs increasing at a lower rate and length of
stay decreasing at a faster rate than hospitals with consistently low
margins. The result was that in 2005 hospitals with low Medicare
margins were less competitive with nearby hospitals and those with high
Medicare margins more competitive. Excluding hospitals with
consistently high standardized costs (about 17 percent of hospitals)
would raise the industrywide Medicare margin by 3 percentage points.
Table 1. Hospitals with consistently low or high adjusted overall
Medicare margins face different cost pressures
------------------------------------------------------------------------
Hospitals' adjusted Medicare margins:
Indicators: -------------------------------------------
Consistently low Consistently high
------------------------------------------------------------------------
Non-Medicare ratio of 1.16 0.99
revenues to costs (2005)
Average annual increase in 6.3% 5.2%
inpatient cost per case
(2002-2005)
Annual change in Medicare -2.3% -3.1%
length of stay (1997-2005)
Standardized cost per case
(2005):
Subject hospital $6,203 $4,527
Hospitals within 15 miles 5,742 5,103
------------------------------------------------------------------------
Note: Hospitals with consistently low or high margins had adjusted
overall Medicare margins (margins calculated excluding indirect
medical education and disproportionate share payments over empirically
justified amounts) from 2002 to 2005 that were in the top or bottom
third each year. Per cases costs are standardized for wages, case-mix,
severity, outlier cases, and teaching intensity. Median values shown.
Source: MedPAC analysis of data from the Centers for Medicare & Medicaid
Services.
Lack of pressure to control costs because of high non-Medicare
revenues may have also contributed to an increase in the growth in
costs per unit of service in 2006, leading to the negative Medicare
margin (-5.4 percent) we project in 2007.
Balancing positive indicators and negative margins, the Commission
recommends that the Congress update both inpatient and outpatient
services by the hospital market basket, with this increase implemented
concurrently with a quality incentive payment program. A pay for
quality performance program would pay those hospitals with higher
quality more than the basic payment rate. Although such a program would
operate separately from the update, a hospital's quality performance
would likely determine whether its net increase in payments in 2008
would be above or below the market basket increase.
Part of the funding for a quality incentive payment policy for all
hospitals should come from reducing indirect medical education (IME)
payments. Our analysis finds that more than half of the IME add-on
payment is unrelated to the additional cost of care that results from
the intensity of a hospital's teaching program (measured by the ratio
of residents per bed). The Commission recommends that the Congress
reduce the IME adjustment by 1 percentage point to 4.5 percent per 10
percent increment in the resident-to-bed ratio, concurrent with
implementation of a system for adjusting payments for severity of
illness. Teaching hospitals as a group already have better financial
performance than non-teaching hospitals under Medicare. They will also
benefit from the severity adjustments to hospital payments that CMS is
considering for proposed regulation and which are necessary to help
improve the accuracy of the payment system.
Our recommendations on the update and IME payments, along with the
contemplated severity adjustments and a focused pay-for-performance
initiative, should be viewed as a package that would improve the
accuracy of Medicare's acute inpatient payments while creating an
incentive for improving the quality of care.
For several years, policymakers have been considering options for
the Federal Government to help hospitals with their uncompensated care.
We found little evidence of a relationship between the disproportionate
share payments hospitals receive and the cost of caring for Medicare
patients or the amount of uncompensated care they provide. If
policymakers desire to provide a Federal payment for uncompensated
care, it should be distributed on the basis of each hospital's
uncompensated care not as an add-on to a Medicare per case payment
rate. To provide the necessary data, the Commission recommends that CMS
improve its instrument for collecting information on uncompensated
care. The Commission has previously suggested specific changes to help
CMS revise its data collection instrument.
Physician services
Our analysis finds that most indicators of payment adequacy for
physicians are stable. Beneficiary access to physicians is generally
good with few statistically significant changes in recent years. We
find that the number of physicians providing services to Medicare
beneficiaries has more than kept pace with growth in the beneficiary
population in recent years, and per beneficiary service volume grew at
a rate of 5.5 percent in 2005. Our claims analysis shows small
improvements in the quality of ambulatory care. The ratio of Medicare
payment rates to private payment rates was essentially unchanged.
In consideration of expected input costs for physician services and
our payment adequacy analysis, the Commission recommends that the
Congress update payments in 2008 for physician services by the
projected change in input prices less the Commission's expectation for
productivity growth. Physicians, like other providers and the taxpayer
and firms that fund Medicare, should be expected to increase their
productivity each year.
Although the recently passed Tax Relief and Health Care Act directs
additional funds to physicians in 2008, the sustainable growth rate
(SGR) formula continues to call for substantial negative updates
through 2015. Though currently we do not see overall access problems,
the Commission is concerned that consecutive annual cuts would threaten
beneficiary access to physician services over time, particularly those
provided by primary care physicians. As a mechanism for volume control,
the current national SGR has several problems, which the Commission
examines in its mandated report to the Congress: Assessing Alternatives
to the Sustainable Growth Rate System.
Fee-schedule mispricing may be one factor contributing to
disparities in volume growth among services. The Secretary could play a
lead role in identifying mispriced services by measuring volume growth
for specific services, while taking into account changes in the number
of physicians performing the service and other factors. CMS or the
Relative Value Update Committee (RUC) could use the results from these
analyses to flag services for closer examination of relative work
values. Alternatively, the Secretary could automatically correct such
mispriced services and the RUC would review such changes during its
regular 5-year review process.
Outpatient dialysis services
Most of our indicators of payment adequacy for outpatient dialysis
services are positive. Beneficiaries' access to dialysis care is
generally good; the number of facilities increased, capacity increased,
and there do not appear to be access problems. The growth in the number
of dialysis treatments kept pace with patient growth. Quality of care
is improving for some measures; more patients are receiving adequate
dialysis and more have their anemia under control. Yet, one quality
measure--patients' nutritional status--has not improved during the past
5 years. Recent evidence about trends in opening new dialysis
facilities suggests that providers have sufficient access to capital.
Between 2003 and 2005, the cost per treatment for composite rate
services and dialysis drugs fell, largely driven by decreases in drug
prices. We project that Medicare payments will cover the costs of
providing outpatient dialysis services to beneficiaries in 2007 with a
margin of 4.1 percent.
Considering expected input costs and our payment adequacy analysis,
the Commission recommends that the Congress update the composite rate
for outpatient dialysis services in 2008 by the projected change in
input prices less the Commission's expectation for productivity growth.
The Commission remains concerned that Medicare continues to pay
separately for drugs and laboratory tests that providers commonly
furnish to dialysis patients. Medicare could better achieve its
objectives of providing incentives for controlling costs and promoting
access to quality services if all dialysis-related services, including
drugs, were bundled under a single payment. In addition to broadening
the payment bundle, the Secretary should continue efforts to improve
dialysis quality. The Commission has recommended that Medicare base a
portion of payments on the quality furnished by facilities and
physicians who treat dialysis patients. The Secretary also needs to
continue to develop quality measures and to monitor and improve
dialysis care. Together, these steps should improve the efficiency of
the payment system, better align incentives for providing cost-
effective care, and reward providers for furnishing high-quality care.
Post-acute care providers
The recuperation and rehabilitation services that post-acute care
providers furnish are important to Medicare beneficiaries. In our March
report the Commission analyzes payment adequacy for the four types of
post-acute care (PAC) providers: skilled nursing facilities (SNFs),
home health agencies (HHAs), inpatient rehabilitation facilities
(IRFs), and long-term care hospitals (LTCHs).
Prospective payment systems (PPSs) for each setting were developed
and implemented separately. While the PPSs have changed the pattern of
service use within each setting, we do not have adequate data to
evaluate whether beneficiaries are being treated in the setting that
provides the most value to them and the program. Three barriers
undermine the program's ability to know if it is purchasing high-
quality care in the least costly PAC setting consistent with the care
needs of the beneficiary:
Case-mix measures often do not accurately track
differences in the costs of care.
There is no common instrument for patient assessment
across PAC settings, which makes it difficult to compare costs, quality
of care, and patient outcomes.
There is a lack of evidence-based standards of care.
Similar barriers limit our ability to compare differences in
financial performance among the provider within each post-acute
setting. We do not know if better financial performance results from
higher efficiency or differences in the mix of patients chosen for
treatment, but, as might be expected, we found that those facilities
had consistently low unit costs, used fewer resources, and had higher
occupancy.
Skilled nursing facility services
Our indicators of payment adequacy are generally positive for
skilled nursing facilities (SNFs), but quality shows a decline.
Beneficiaries have good access to SNF care, although those who need
certain expensive services may experience delays in finding SNF care
and end up staying longer in the hospital. The number of facilities
providing SNF care to Medicare beneficiaries has remained almost
constant. Spending and volume of days and stays increased in 2005, with
cases continuing to shift to rehabilitation case mix groups, which
receive higher payments. Two outcome measures for Medicare SNF patients
show declining quality in recent years: average facility rates of
avoidable rehospitalizations increased and discharges to the community
declined. SNFs appear to have good access to capital. We project that
Medicare payments will more than cover the costs of providing SNF care
to Medicare beneficiaries in 2007 with margins for freestanding SNFs of
around 11 percent.
The data suggest that skilled nursing facilities should be able to
accommodate cost increases in 2008. Therefore, the Commission
recommends that the Congress should eliminate the update to payment
rates for SNF services for fiscal year 2008.
Some have argued that, although Medicare payments may be more than
adequate, Medicaid payments to nursing facilities are inadequate and,
therefore, Medicare should increase its payments to SNFs. The
Commission rejects this argument for three reasons. First, Medicare
payments should be set to cover the costs of an efficient provider, not
to cover the additional costs of caring for non-Medicare patients.
Second, increasing Medicare payments would target the wrong facilities;
SNFs with more Medicare patients and fewer Medicaid patients would
receive larger increases, and those with fewer Medicare patients and
more Medicaid patients, would receive smaller increases. Third, if
Medicare took this perspective, States might scale back their spending
in response.
Home health services
Our measures for home health are positive. Access to care continues
to be satisfactory; more than 99 percent of beneficiaries live in an
area served by a home health agency (HHA) in 2006. The number of
beneficiaries using the benefit increased substantially, the number of
HHAs participating in Medicare also continues to increase rapidly, but
the growth in new HHAs varies among regions with two States accounting
for two-thirds of the growth. For most measures quality has increased
slightly, but the rate of hospital readmissions and of unplanned
admissions to emergency rooms has not changed. Between 2004 and 2005
average cost per episode grew at a rate of under one percent yielding a
margin for freestanding agencies of over 16 percent. We project that
Medicare payments will more than cover the costs of providing home
healthcare to Medicare beneficiaries in 2007 and project margins
remaining over 16 percent.
The data on access, quality, volume, and financial performance
suggest that agencies should be able to accommodate cost increases in
2008, hence, the Commission recommends that the Congress should
eliminate the update to payment rates for home healthcare services for
calendar year 2008.
Inpatient rehabilitation facility services
Judging payment adequacy for inpatient rehabilitation facilities,
which has been robust in recent years, is now more difficult because of
a major change in Medicare policy. The change was CMS's modification of
the 75 percent rule, which requires IRFs to have 75 percent of
admissions with one or more of a specified list of conditions, and 2005
was the first full year the new rule took effect. Medicare is the
principal payer for IRF services, accounting for about 70 percent of
discharges.
The number of IRF cases increased rapidly after the introduction of
the PPS but decreased as the 75 percent rule started to be phased in.
Medicare spending followed the same trends, increasing rapidly from
2002 to 2004 but decreasing from 2004 to 2005. Our other indicators
show that the supply of IRFs was stable in 2005, the patients treated
by IRFs in 2005 were more complex than those who shifted to alternative
settings, and quality indicators for all IRF patients and for those who
were discharged home improved slightly. Most IRFs are hospital-based
units that access capital through their parent institutions, which have
good access.
As expected, in response to the modified 75 percent rule growth in
costs per case accelerated between 2004 and 2005. This is because the
volume of cases declined, and the patient mix became more complex as
patients with lesser needs were treated in other settings. Aggregate
Medicare margins for 2005 were high, around 13 percent. We estimate
that margins in 2007 will be lower, largely because of the effect of
the 75 percent rule. We estimate that the margin will range between 0.5
and 5.5 percent, depending on the ability of the IRFs to control their
costs to compensate for the drop in volume.
In this time of transition from historically high margins and
growth to lower margins and volume declines, the Commission recommends
that the Congress update payment rates for IRFs for 2008 by 1 percent.
Long-term care hospitals
Our indicators of payment adequacy for long-term care hospitals
(LTCHs) are largely positive. Medicare is the predominant payer for
LTCH services and accounts for more than 70 percent of LTCH discharges.
The number of LTCH providers increased between 2004 and 2005, with the
number of LTCH hospitals within hospitals (HWHs) growing twice as fast
as the number of freestanding facilities. The number of cases increased
10 percent annually from 2003 to 2005 and Medicare spending grew at
almost triple that pace during the same period. The rate of growth
slowed in 2006. The evidence on quality is mixed. Risk-adjusted rates
of death in the LTCH, death within 30 days of discharge, and one of
four patient safety indicators (PSIs) showed improvement between 2004
and 2005. But more patients were readmitted to acute care and three
PSIs worsened. Rapid expansion of both for-profit and nonprofit LTCHs
demonstrates good access to capital for this sector.
LTCHs' Medicare margins for 2005 were high, almost 12 percent, but
CMS has made a number of policy changes that will reduce payments. We
estimate the margin in 2007 to be between 0.1 and 1.9 percent with the
magnitude depending on how LTCH-HWHs respond to the 25 percent rule
(this rule pays less for certain patients these facilities admit from
their host hospitals).
The Commission is concerned about growth in long-term care
hospitals because we are not certain that this high-cost service is
being used only on patients who need it. LTCHs have shown themselves to
be very responsive to changes in payments and should be able to
accommodate cost changes in 2008. These findings, as well as the other
factors the Commission considers, which are almost all positive, lead
us to recommend that the Secretary should eliminate the update to
payment rates for LTCH services for 2008. The Commission recommends
limiting growth in payments per case until the industry and CMS agree
on patient and facility criteria to better define these facilities and
the patients appropriate for them, as we previously have recommended.
Update on Medicare private plans
In our March report the Commission presents recent findings on the
Medicare Advantage (MA) plans beneficiaries can join in lieu of
traditional fee-for-service Medicare, and the private plans offering
the new prescription drug benefit.
All beneficiaries will be able to join an MA plan in 2007, and
enrollment in MA plans grew substantially in 2006 with the percentage
of beneficiaries enrolled in MA plans reaching 17 percent, a level
close to its all-time high. Almost half the growth in 2006 was in
private fee-for-service MA plans. In addition, our analysis of MA
payments shows that the benchmarks (which are the reference level for
plan bids and the maximum program payment) now average 116 percent of
traditional Medicare fee-for-service (FFS) levels, and payments average
112 percent.
The ratio of benchmarks and payments varies by plan type, although
it exceeds the expected Medicare FFS expenditures for those
beneficiaries for all types of plans. Table 2 shows that payments to
HMOs are 110 percent of expected FFS costs. Payments for PFFS plans are
119 percent of expected Medicare FFS costs as they are located in areas
of the country where benchmarks are much greater than FFS. The amount
returned to beneficiaries in the form of extra benefits and reduced
premiums varies as well. For example, PFFS plans returned a much lower
share of plan payments to beneficiaries in the form of extra benefits
and reduced premiums than HMOs.
Table 2. Medicare Advantage benchmarks and payments in 2006 exceed expected Medicare fee-for-service
expenditures for all types of plans
----------------------------------------------------------------------------------------------------------------
Enrollment as of Benchmark
Type of plan July 2006 (in relative to FFS Payments relative
thousands) cost to FFS cost
----------------------------------------------------------------------------------------------------------------
HMO 5,195 115% 110%
Local PPO 285 120 117
Regional PPO 82 112 110
PFFS 774 122 119
----------------------------------------------------------------------------------------------------------------
Note: FFS (fee-for-service), PPO (preferred provider organization), PFFS (private fee-for-service). Payments
relative to expected FFS costs for the beneficiaries enrolled in Medicare Advantage plans.
Source: MedPAC analysis of data from the Centers for Medicare & Medicaid Services on plan bids, enrollment, and
benchmarks.
The Commission has always supported a private plan option in
Medicare, and has recommended a policy of financial neutrality between
private plans and traditional Medicare fee-for-service. Financial
neutrality includes setting payment benchmarks at 100 percent of fee-
for-service costs and removing duplicative payments for indirect
medical education. In addition to financial neutrality between MA and
FFS, the Commission has also recommended neutrality between types of MA
plans, including eliminating the stabilization fund for PPO plans and
making bidding rules consistent across plan types. Further, the
Commission has recommended a pay for quality performance program for MA
plans, and calculating clinical measures for the FFS program that would
permit CMS to compare quality in the FFS program with that in MA plans.
The report also provides information on the enrollment, benefits,
and premiums of the plans offering the new prescription drug benefit,
both the stand-alone prescription drug plans and the prescription drug
plans affiliated with Medicare Advantage plans. Our analysis of Part D
plan offerings for 2007 shows that about 30 percent more plans entered
the market for 2007 than in 2006 and that the typical beneficiary has a
choice of over 50 stand-alone drug plans. More plans are including
coverage in the gap for generic drugs. (The gap is that part of drug
spending where the basic benefit provides no coverage.) Looking at
average premiums unweighted by plan enrollment, those for basic plans
are lower in 2007 than in 2006, and those for plans with enhanced
coverage are higher.
Plans bid to provide Part D coverage, and current law calls for
weighting Part D plan bids for 2007 with plans' 2006 enrollment when
calculating the national average bid (called enrollment weighting).
Because enrollees tended to choose lower premium plans, enrollment
weighting would have led to a lower government subsidy, which would
mean lower Medicare payments to plans and higher enrollee premiums.
Similarly, the law also calls for enrollment weighting in the formula
for calculating each region's low-income premium subsidy amount for
2007. CMS chose not to fully enrollment weight bids in either case.
This action means that enrollees will pay lower premiums and more low-
income enrollees will be able to remain in their current plan. However,
it also does not allow the full benefits of competition to be realized
and thus, the cost to Medicare will increase.
CMS is using its general demonstration authority to transition to
enrollment weighting over time. The Commission is concerned that CMS is
using its demonstration authority to provide higher payments rather
than demonstrate policy options. The Commission has previously
recommended that the Secretary should use his demonstration authority
to test innovations in the delivery and quality of healthcare, not as a
mechanism to increase payments. The Commission has also previously
recommended that the Secretary have a process for timely delivery of
Part D data to Congressional support agencies. CMS has proposed a
regulation that supports the intent of that recommendation. MedPAC
supports that proposed regulation and urges CMS to make it final.
Chairman STARK. Okay. This one is on. Dave, do you want to
start out here? I can come back to you.
Mr. CAMP. I noticed that you--first of all, thank you for
your testimony. I noticed--obviously I just want to talk about
Medicare Advantage a little bit.
You note that the plans are paid 12 percent more than the
traditional fee-for-service. Did that analysis take into
account the additional services that Medicare Advantage plans
may provide to beneficiaries?
Mr. HACKBARTH. The 12 percent is the amount paid on behalf
of enrollees in the various types of private plans. So, it is a
total of all of the payments going on behalf of those
beneficiaries. So, it includes the additional benefits provided
by some plans to beneficiaries.
Mr. CAMP. Yes, but the value of those plans--obviously, the
payment to the Advantage Plan covers all those plans. My
question is, did that amount take into account the value of
those plans, which I am not sure I heard you address.
Mr. HACKBARTH. Yes. Well, let me approach it from a little
bit different perspective and see if we can come together. As
you know, there are various types of private plans
participating in Medicare Advantage. There are Health
Maintenance Organizations (HMOs), local preferred provider
organization (PPOs), regional PPOs and private fee-for-service.
Those plans are located in different parts of the country. So
the amount that they are paid varies according to where they
are located.
Of those types of plans there is only one of them, the
HMOs, where the amount going to the--the plans bid for Medicare
Part A and B services--is less than it costs traditional
Medicare to provide the same service, but when you add the
amount paid to those plans, it is passed on to beneficiaries,
and added benefits reduce premiums. The combined total takes
the HMO payments above the traditional fee-for-service expense.
For all the other plan types, local PPOs, regional PPOs,
private fee-for-service, the bids of those plans on Part A and
B Medicare are higher than it costs traditional Medicare to
provide the same services.
Mr. CAMP. Yes, but what I think that I hear you saying is
that that finding did not take into account the value of the
additional services outside of traditional fee-for-service
Medicare, nor does it take into account the value of a lower
copayment and deductible to a beneficiary. Am I accurate in
making that statement?
Mr. HACKBARTH. Well, not exactly. The amount we are paying
on behalf of each enrollee exceeds the amount that Medicare
would spend on behalf of the same people. Now, in fact, the
private plan enrollees often get additional benefits or lower
premiums as a result of that additional payment. So, that is
unquestionably real value and benefit to many of your
constituents.
The evidence from the bidding process suggests that those
plans are not delivering even the Medicare A and B services
more efficiently. So, we are using an inefficient mechanism to
provide additional benefits to beneficiaries.
Chairman STARK. Would the gentleman yield?
Mr. CAMP. Yes, I would be happy to.
Chairman STARK. Glenn, let me try it this way. Let us just
take Plan A and let us say that fee-for-service Medicare in
that community would be $6,000. What you are suggesting is that
we are paying $6,720 on average to that plan, so we are paying
$720 more than what we would normally pay for A and B services.
Mr. HACKBARTH. Right.
Chairman STARK. I think where David and I are curious to go
is would the $720 extra, would that be eaten up, if you will,
by eyeglasses, hearing aides, reduced monthly premiums, et
cetera, on average? In other words, for the extra 12 percent,
are the beneficiaries getting that much extra value?
Mr. HACKBARTH. We don't know what the plan's cost structure
is for providing the eyeglasses and the other things that you
mentioned. So, for that $720 the beneficiary is getting
additional benefits.
Chairman STARK. But you don't know what they are worth?
Mr. HACKBARTH. Right. I don't know what they are worth. The
second point that is critical is that if we want to pay more
through traditional Medicare, you could also buy additional
benefits for beneficiaries, and in many cases at a
significantly lower cost than it costs the private plans to do
the same.
Chairman STARK. So, if the policy goal is more benefits or
more support to lower income patients, those are reasonable
policy goals, but let us use the most efficient vehicle, which
often will be traditional fee-for-service Medicare not the
private plan.
Mr. CAMP. Well, thank you. What we are trying to get at is
comparing values, and what is interesting is HMO plans, for
example, which have the highest enrollment, did 3 percent less
than traditional Medicare, but we are trying to compare the
value of the plan that recipients receive.
Obviously in Medicare Advantage they receive a little bit
more, but is it enough to make the extra payment valuable? We
are just trying to determine that, and so the conclusion that
Medicare Advantage plans are paid more I think we all accept
and understand and agree to, but the question is, is it a wise
use of taxpayer dollars to pay those plans more to go into
these areas that--to have lower deductibles, to have these
extra benefits? That is the bottom line we are trying to get
to.
Mr. HACKBARTH. Well, I think that the question about
whether we are getting good value is an important question to
ask. The way the current payment mechanism works, because the
payment rates are generous and the private plans are able to
provide additional benefits, lower premiums for that, we are
basically sucking more and more Medicare enrollees into private
plans that cost more than traditional Medicare to provide the
Part A and B benefit package.
Mr. CAMP. Except that doesn't explain the HMO plans.
Mr. HACKBARTH. The HMO plans, of the types, the HMO plans
are the only type that, on average, the bid for Part A and B is
less than what it costs traditional Medicare to provide the
same package. For all the other plan types the average bid is
higher than traditional Medicare.
Mr. CAMP. Thank you. I see my time has expired. Thank you,
Mr. Hackbarth.
Chairman STARK. Yielding to Mr. Thompson.
Mr. THOMPSON. Thank you, Mr. Chairman. Could you just tell
me, I am wondering if you did any analysis on the issue of
private pay margins in hospitals, urban versus rural? I know
you talked about how the Medicare margins of rural and urban
hospitals compare. I am talking about just the private
component. Did you do anything with that? How do they compare?
Mr. HACKBARTH. Well, as you know, Mr. Thompson, we do focus
on the Medicare margins of hospitals principally, not the
private margins. We do know that the total margins, which is a
combination of Medicare and of private, for rural hospitals
tend to be higher on average than for urban hospitals.
Mr. THOMPSON, but you didn't break out the specific
categories?
Mr. HACKBARTH. Well, I can infer. Right now, the average
Medicare margin of rural hospitals and urban hospitals is very
close. Rurals are actually somewhat higher at this point. Let
us say they are even, so if their total margins are higher, the
private margins therefore must be higher.
Mr. THOMPSON. But you didn't separate them out? You
didn't----
Mr. HACKBARTH. No.
Mr. THOMPSON. Okay. I just wanted to know that. On the
critical access hospitals, some of the problems that we are
facing, especially out in California where, like every place
else, hospitals are getting old and they are trying to build
new hospitals, but in California we have the seismic hurdle
that we are trying to clear, and it is pretty significant. I
don't know if you know the numbers, but it costs more to
seismically retrofit the hospitals in California than the
equity in all the hospitals in California. Some of these guys
are trying to consolidate, and some are trying to build new
maybe five miles up the road from the old, and they can't get
any guarantee from CMS that they can stay a critical access
hospital. Have you taken any position on this?
Mr. HACKBARTH. We have not. We have discussed the issue.
Mr. THOMPSON. Would you, please?
Mr. HACKBARTH. Well, I come here to represent the
Commission and there is no formal Commission position on that
issue. We did talk about recommending that CMS have the ability
to allow mergers without losing designation as critical access.
Mr. THOMPSON. I didn't hear the last part of your
statement.
Mr. HACKBARTH. I am sorry. We did talk about recommending
to CMS that they allow mergers of critical access hospitals
without the hospitals losing their designation, but we did not
make a formal recommendation on it.
Mr. THOMPSON. When you say you talked about, you talked
about it in the positive?
Mr. HACKBARTH. Generally speaking, yes. As with almost
everything we talk about, there are pros and cons, but in
general the feeling was that it could be positive. The other
part of the discussion was that at that point in time at least
we did not have an indication that there was a widespread
interest in doing such mergers. So, we could take a look at it.
Mr. THOMPSON. There is a pretty widespread interest--and I
can't speak for everyone here who represents rural areas, but I
know that in my area there is. I am sure that the seismic issue
probably pushes it a little bit, but this is really important
for a lot of folks, and it is going to mean whether or not some
of these hospitals are able to rebuild or not.
I would appreciate any work you can do on that.
On the Geographic Practice Cost Indices (GPCI) issue, does
your report or the Surgeon General's Report (SGR) do any work
on some of the things that you have talked about before? I know
in your 2005 report you made some findings that it was time to
revisit the boundaries of payment localities. Localities likely
do not correspond to market boundaries, and you said that
Medicare is probably underpaying in some geographic areas
because of this. Probably most of us here can point to examples
in our own districts where this is the case. I am wondering if
your report or the SGR report dealt with this and if not when
are you going to complete your work and will you be making
recommendations?
Mr. HACKBARTH. Yes, we have talked at some length about
this issue with specific regard to some areas in California
where there seem to be particularly acute issues with the
boundaries.
I would make a couple points. First of all, this sort of
geographic adjustment to reflect underlying difference in costs
is pervasive in the Medicare Program. The purpose of doing it,
of course, is to try to match payments with the cost of doing
business in particular areas.
It is not an easy thing to do. Drawing these lines almost
inevitably leads to people feeling unhappy about where the line
is; they are on the wrong side.
Mr. THOMPSON. I don't think anybody is suggesting it is
easy, but in a lot of areas it is just patently unfair and it
is hurting in the delivery of healthcare and we need to try to
figure this out.
Mr. HACKBARTH. So, with specific regard to California, we
think that there are some places in California where the
problems are particularly severe and our advice to CMS has been
to look at how those boundaries can be redrawn.
Mr. THOMPSON. With all due respect, and my time has run
out. I ask to be indulgent for a second. We have been talking
about this forever. Ever since I have been here we have been
talking about this and you guys have told us that you are going
to make recommendations, and I would just like to know when the
recommendation will be forthcoming. Thank you.
Mr. HACKBARTH. May I answer the question? What I was
describing is our view of the issue, Mr. Thompson, and that is
that CMS ought to look at redrawing. We do agree with CMS that
redrawing of the boundaries ought to be budget neutral within
the State. In addition to that, as CMS reviews this sort of
line drawing, they ought to be willing to respect the wishes of
States where there has been an agreement to have a single area
in the whole State. So, those are our thoughts on the issue.
Chairman STARK. Mr. Ramstad.
Mr. RAMSTAD. Thank you, Mr. Chairman. Chairman Hackbarth,
good to see you again. I appreciate your testimony. I certainly
agree that we need a thorough analysis of Medicare Advantage
payments, and I certainly also appreciate MedPAC's
recommendations, but I have this distinct feeling of deja vu.
I remember 1997 when we enacted the Balanced Budget Act
(P.L. 105-33) and made significant changes to Medicare Managed
Care, and certainly these changes did achieve some savings, but
they also caused many private plans to desert the market
entirely. Of course this diminished the number of overall
choices for Medicare beneficiaries many places, including my
home State of Minnesota.
So, then we spent the next few years trying to undo some of
those reforms. Today in my hometown of Minnetonka, Minnesota,
we have 42 Medicare Advantage plans available. Six of the 42
plans have $0 premiums and 11 have monthly premiums less that
$30. Nearly half allow a beneficiary to see any willing
physician. Thirty plans offer vision--eye benefits. Eleven
offer dental benefits and 35 offer physical exams. In the
aggregate, 35 percent of Medicare beneficiaries enrolled in
Medicare Advantage plan in my district, which by the way is the
second lowest percentage only to my distinguished Chairman, Mr.
Stark, who has the highest percent on the Subcommittee.
Anyway, in cataloguing these virtues, reading the litany of
the result of these reforms really, my concern is--and I think
the key question we have to ask, if we limit payments to
Medicare Advantage plans, won't these seniors in Minnetonka,
Minnesota be deprived of these benefits? That is what the
seniors are asking me, and that is their big concern,
understandably so.
Mr. HACKBARTH. I certainly understand their concern. Let me
sort of go back to square one for a second. MedPAC, over a
period of many years, has repeatedly expressed its support for
giving Medicare beneficiaries the option of enrolling in
private health plans. That is something that we believe very
strongly in.
Chairman Stark will remember that when I was deputy
administrator of the Health Care Financing Administration
(HCFA) in the Reagan Administration too many years ago, that
this was an issue that we felt very strongly about, worked with
Congress to enact legislation at that point to allow HMOs to
participate in Medicare. I was Mr. Private-Health-Plan-Option
within the CMS, then HCFA, at that point in time. In addition,
in my own career, I was CEO of Harvard Vanguard Medical
Associates, a very large, multi-specialty, practice that is
overwhelmingly prepaid group practice.
I believe, and I have worked in the field, and I think this
is critically important for Medicare beneficiaries. On the
other hand, Medicare has severe long-term financing issues. We
want private health plans in Medicare, the private health plans
that will help deal with the long-term challenges facing the
programs, not plans that will help drive up the cost still
further and create impossible choices for this Committee in the
future.
Our concern about the current structure, the Medicare
Advantage program, is that through these overly generous
payment rates which are translated for beneficiaries into very
attractive with added benefits, and lower premiums, and free
choice of physician, we are going to be sucking millions of
additional beneficiaries into private health plans that are
demonstrably less efficient than traditional Medicare.
Once we get millions, and millions and millions of people
in those plans, changing course on this policy is going to
become impossible. So, we see a very clear and imminent risk
from this overpayment that is going to put the Committee, the
Congress and the country on hold in an untenable position.
Private plans that are more efficient? Absolutely, I am all
in favor. Private plans that are going to drive up Medicare
costs are a mistake for the program.
Mr. RAMSTAD. Well, let me just--I see that time is waning
both for our floor vote and here. Let me just ask a final
question very directly. It should be a pretty simple answer and
it concerns pay for performance. I think you are an advocate,
as I have been for a long time, of pay for performance if it is
done right. It seems to me that if we want to effectively
implement MedPAC's pay-for-performance proposal that Congress
needs to accompany that with a comprehensive information
technology (IT) bill. Do you agree?
Mr. HACKBARTH. I certainly agree that clinical IT is very,
very important for the advancement of a broad health policy
agenda, including pay for performance.
I mention my experience with Harvard Vanguard. Harvard
Vanguard has had a computerized medical record since 1974. It
is one of the leaders in the field. I have seen the benefits of
computerized medical records firsthand. So, yes, we need to
build that infrastructure.
Mr. RAMSTAD. Thank you, Mr. Chairman. Dr. Hackbarth, thank
you.
Chairman STARK. Thanks very much. Ms. Tubbs-Jones.
Ms. TUBBS JONES. Mr. Chairman, I was getting ready to say
if we are getting ready to recess I want to say hi, and welcome
and I will see you next time, but since we are not, let me real
quick--maybe somebody else will get a chance to ask questions
before votes as well, Mr. Kind over here. I will only take 2\1/
2\ minutes, Mr. Kind.
I represent the city of Cleveland, great hospital systems.
Can you tell me what you think the impact of you imposing
controlling costs will have on the ability of urban hospitals
who tend to have larger healthcare costs or delivery costs or
have on their ability to deliver service?
Mr. HACKBARTH. Well, our goal in making recommendations
about the hospital payment system is to ensure that Medicare
pays adequately for the cost of the efficient provider of those
services. There are two aspects to that, one is the level of
the payment and the other is how it is adjusted for different
types of patients. So we spend a lot of efforts trying to make
our payment rates fair to all providers, both urban and rural.
Ms. TUBBS JONES. Can I stop you just for one minute and ask
you what a ``different type of patient'' is? What is that?
Mr. HACKBARTH. Different diagnoses, for example a heart
patient as opposed to a patient with knee surgery.
Ms. TUBBS JONES. Just so the record is clear, we are not
talking about the type of patient, we are talking about the
type of service----
Mr. HACKBARTH. The diagnosis, the clinical needs of the
patient.
Ms. TUBBS JONES. Okay.
Mr. HACKBARTH. So we do think our recommendations are
adequate to finance the Medicare operations of efficiently run
urban and rural hospitals.
Ms. TUBBS JONES. Is there a differentiation between an
urban hospital and a rural hospital in terms of cost?
Mr. HACKBARTH. The system uses a wage index to adjust for
differences in the cost of hiring people in urban areas versus
rural areas or among different types of urban areas. So, the
system is fairly complex in making adjustments for those costs.
Ms. TUBBS JONES. So, the fact, for example, that diabetes
or high blood pressure or other diseases such as that
predominate in many urban areas and many minority areas, is
that factored into your decisionmaking with regard to cost?
Mr. HACKBARTH. Well, we pay on a per case basis. If
diabetes, for example, is more common and there are more
hospital admissions unfortunately for diabetes, then the
hospital gets paid for each of those cases. So, if the
prevalence of the disease is higher in a particular community
there will be a higher volume of patients and a higher volume
of payments to the hospital.
Ms. TUBBS JONES. I could ask you a thousand more questions,
but in the interest of making sure that my colleague, Mr. Kind
has an opportunity to ask questions before we break, I am going
to end with that.
I may submit some questions in writing. My greatest concern
is that we deliver quality healthcare, my greatest concern.
Chairman STARK. Mr. Kind, would you like to take some time?
Mr. KIND. Yes, thank you Mr. Chairman. I will try to get
right to the point. Thank you, Chairman Hackbarth, for your
testimony here today. We appreciate the work you put in.
I come from a district not unlike Mr. Ramstad's, western
Wisconsin, and we, for a very long time, have been dealing with
some of the regional reimbursement disparities. I am sure you
are familiar with the Weinberg study or the Dartmouth Atlas
study highlighting this issue.
Getting the MedPAC recommendations on pay for performance,
do you think that is one way of being able to deal with these
regional disparities that exist today?
Mr. HACKBARTH. Perhaps indirectly. As you know, some of the
areas that have low cost on a per-beneficiary basis actually
have higher quality on average than the high-cost areas in the
country.
Mr. KIND. That is right.
Mr. HACKBARTH. So, to the extent that we are adjusting
payments for performance, there will be rewards for those
States that are low cost and high quality which don't exist in
the current system.
Mr. KIND. I am new to the Committee, and obviously we will
be getting into this in greater detail, but that always has
been a puzzlement for many of my constituents back home, the
fact that we are one of the lower reimbursed areas, yet still
consistently one of the highest quality as far as performance
outcome is concerned. I also agree with--I think it was Mr.
Ramstad that raised the issue with health information
technology (HIT) and the importance of trying to get to that
promised land as soon as possible.
I haven't had a chance to obviously review MedPAC's
recommendations, but are you making any specific
recommendations to incentivize getting HIT nationwide that we
should be looking at?
Mr. HACKBARTH. Briefly, our general view of it is that the
best way to encourage clinical information technology is to
reward performance, in particular reward high quality of care.
There is lots of capital in the U.S. healthcare system. There
is lots of investment going on every day, in fact in the
hospital world record-breaking investment in new facilities and
upgrades and the like.
So, there is lots of money around. The problem is, right
now, there is not a return on investment because we don't
reward higher quality. So if you are a hospital executive and
you look into invest money, you put it into things like
scanners that have a rate of return. Higher quality doesn't
have a rate of return in today's healthcare system.
If you pay more for quality, you will get more----
Mr. KIND. Let me ask you, there are really two approaches.
We could either offer a bonus payment for those that get there,
make the investment and do it, or threaten payment
reimbursement if they don't do it.
Mr. HACKBARTH. Yes. The approach that we caution against is
to say, well, we will give you money to buy computer systems
and not link that payment to results. It is easy to go out and
buy a computer system and have boxes in offices. What we want
is for them to use it to improve care. So, pay for the outcome,
and that will provide an incentive to invest in the tools,
don't just pay for the tools and leave the outcomes----
Mr. KIND. Let me ask you real quick in regards to the
recommendation on home health services, MedPAC is recommending
eliminating the update to the payment rates. It seems to me
that this should be the direction we should be advocating, more
home health services. It is better for the patient and I think
ultimately better for the taxpayer too. A lot of the home
health agencies that are around my neck of the woods have been
experiencing some pretty tough times. So, I am concerned in
regards to the rate. I am wondering if you could offer a brief
explanation of why you are recommending this.
Mr. HACKBARTH. Yes. The brief explanation is that there is
plenty of money in the home health system right now. On average
the margin, Medicare margin for home health is about 16
percent. For rural providers, as I recall, it is about 13
percent. It is a few points lower than the average but still
very healthy. So we don't think the problem in home health
right now is a lack of money.
We do think that there are some issues in the case mix
adjustment system and whether we pay adequately for all types
of patients. So we have made some recommendations on improving
that case mix adjustment system. There is plenty of money in
the bank.
Mr. KIND. Well, I have a similar concern in regards to the
recommendation on skilled nursing facilities, nursing homes
back home. Again, I have heard a lot from them throughout the
years in regard to how tight their budget is, and while
Medicare reimbursement may be their one shining star in the
revenue portfolio, they are telling me that with insufficient
Medicaid payments, which is the bulk of their reimbursement,
that they are just barely staying even. So, if they see a hit
on Medicare reimbursement, that is going to put them in even a
tougher spot.
Let me ask, in the report do you take into consideration
Medicaid reimbursement?
Mr. HACKBARTH. We do not. The reason for that--first of
all, the Medicare margin for skilled nursing facilities is also
quite healthy. We do not take into account Medicaid because we
think it would be a very inefficient way to deal with the
Medicaid payment problem if there is one.
Just think about this for a second. If the problem is
Medicaid patients, the skilled nursing facilities with the most
problems are the ones that have the most Medicaid patients and
the fewest Medicare patients. So, if we increased Medicare
payments for those institutions with a very high Medicaid
proportion, they are not going to get a lot of assistance. The
skilled nursing facilities that will be helped are the ones
that already have a high Medicare share relative to Medicaid.
So, if you pump up Medicare payments, it is not going to go
to institutions with a heavy Medicaid burden. So, it is
misdirected and it is just not an effective way to deal with
the Medicaid payment problem.
Mr. KIND. Thank you again. Thank you, Mr. Chairman.
Chairman STARK. You are welcome. Glenn, I am going to ask--
I know this is going to send Mark into a tailspin, but if we
could keep the record open, I think we will conclude the
hearing. We have got 45 minutes or more of voting.
I know it will only take Mark that long to answer all the
letters that we will submit to you to add to the record. Thank
you, and as I said, I know we have got a lot more questions,
but I don't think it is quite fair to keep all of you guys
hanging around now. We will revisit this again.
Thanks very much for your help.
Mr. HACKBARTH. Okay. Thank you.
Chairman STARK. Bye-bye.
[Whereupon, at 2:46 p.m., the hearing was adjourned.]
[Questions submitted by the Members to the Witness follow:]
Questions Submitted by Mr. Stark to Mr. Hackbarth
Question: Private Fee for Service. Private Fee for Service appears,
based on your data, to be the most overpaid of all the Medicare
Advantage plans, with payments to private fee-for-service at 119
percent of what we pay in fee-for-service Medicare. What is the range
of overpayments to private fee-for-service plans? Can you tell us what
a beneficiary gets from joining a private fee-for-service plan? What
care coordination services do they typically provide? How are they
different from fee-for-service Medicare? Are there other additional
benefits that a beneficiary receives from a private fee-for-service
plan?
Answer: Our data do indicate that private fee-for-services (PFFS)
plans receive program payments that are 119 percent of what Medicare
Program expenditures would have been for the enrollees of these plans
if they had been in traditional fee-for-service (FFS) Medicare. The 119
percent figure is weighted by actual enrollment in PFFS plans as of
July 2006. That is, the 119 percent figure is higher than for other
plan types, such as HMOs, because PFFS plans draw their enrollment from
counties where the benchmarks are relatively higher than other
counties. Generally, PFFS plans are drawing their enrollment from
counties that have benchmarks that reflect statutorily set floor levels
that exceeded historical fee-for-service expenditures levels (the
floors established in the Balanced Budget Act 1997 and in the Medicare,
Medicaid and SCHIP Benefits Improvement and Protection Act of 2000).
The table below shows the range of MA program payments to PFFS
plans and the enrollment in each range.
----------------------------------------------------------------------------------------------------------------
Range and distribution of Medicare Advantage program payments to private fee-for-service plans in relation to
Medicare fee-for-service expenditures, weighted by enrollment, July 2006
-----------------------------------------------------------------------------------------------------------------
Percentage of PFFS Enrollment-weighted
MA program payments to PFFS compared to FFS enrollment in this average MA program payment
range for this range
----------------------------------------------------------------------------------------------------------------
140% 2% 142%
----------------------------------------------------------------------------------------------------------------
130, <140 9 134
----------------------------------------------------------------------------------------------------------------
120, <130 34 125
----------------------------------------------------------------------------------------------------------------
Subtotal of enrollment in
counties with payments at or 45
above 120 percent of FFS
----------------------------------------------------------------------------------------------------------------
110, <120 42 115
----------------------------------------------------------------------------------------------------------------
105, <110 10 108
----------------------------------------------------------------------------------------------------------------
<105 3 103
----------------------------------------------------------------------------------------------------------------
In our analysis of benchmarks and program payments in MA in 2006,
we found that level of rebates in PFFS plans was about 10 percent of
FFS expenditure levels, on an enrollment-weighted basis. Thus, PFFS
plans are providing enrollees with extra benefits financed by rebate
dollars (75 percent of the difference between plan bids and the
benchmarks in their service areas). The majority of the rebates are
used to finance reductions in cost sharing for Medicare Part A and Part
B services that beneficiaries would otherwise be responsible for--about
70 percent of rebate dollars are used for this purpose in PFFS plans.
About 20 percent of rebate dollars finance enhancement of the Part D
drug benefit, and/or a reduced premium for that benefit; and about 9
percent of the rebate dollars are used to finance extra benefits, such
as hearing, dental and vision care not covered by Medicare. (A very
small percentage of rebate dollars were used in 2006 to finance
reductions in the Part B premium for PFFS enrollees--under 1 percent.)
While the availability of extra benefits and reduced cost sharing
is something that would attract beneficiaries to PFFS plans, being able
to use any provider appears to be an important consideration.
We do not have information on the degree to which PFFS plans might
coordinate care for their plan members. A number of PFFS plans have
reported that they use nurses to perform care coordination functions
for their enrollees, but we do not have data on how prevalent that is.
Currently all PFFS plans pay providers using Medicare's fee-for-service
payment rates. They rely on Medicare's administered pricing system and
do not negotiate rates with providers or set up networks (as they are
permitted to do under the statute).
We would also note that 90 plans require an enrollee to notify the
plan if the beneficiary is going to be admitted to the hospital, and
these plans impose an additional charge for the hospital stay if the
plan is not notified. It is possible that, on being notified of a
hospital admission, the PFFS plan will coordinate hospital care.
Although PFFS plans are allowed to form networks of providers, as
far as we are aware, none of the PFFS plans has a network. Thus,
beneficiaries can use any Medicare provider that is willing to accept
the terms and conditions of the PFFS plan.
Question: IME Payments to Medicare Advantage Plans. Medicare
currently pays teaching hospitals directly for the indirect medical
education (IME) costs associated with Medicare Advantage beneficiaries
and we also make IME payments to the Medicare Advantage plans. Are MA
plans using the portion of their payments attributable to IME to
enhance payments to teaching hospitals? Is there anything preventing
Medicare Advantage Plans from diverting these dollars to other
purposes, such as plan administrative or marketing costs?
Answer: MedPAC staff has consulted with plans and hospitals in the
past and we have been told by both sides that plan payments to
hospitals are determined by negotiation between the parties. The
teaching hospitals have told us that they must compete with community
hospitals and that plans do not recognize teaching costs separately.
Plans tell us that they need to include the teaching hospitals in their
networks in order to attract enrollees seeking care in prestigious
institutions. The plans claim that the teaching hospitals have all the
leverage in negotiations and thus they pay the teaching hospitals more
than non-teaching community hospitals. The plans further claim that the
teaching hospitals do not give them credit for Medicare teaching
payments for the plans' enrollees.
Question: Future analysis of Part D. What type of data does MedPAC
need to analyze the Part D program? Are there issues with the
proprietary nature of private plan data that will preclude you from
doing certain analyses?
Answer: The Commission must report to the Congress about the
effects of Medicare payment policies on cost, quality, and access. We
need detailed data on enrollment, prices, payments, and the performance
of individual plans in order to develop policy recommendations for the
Part D program. For example, we would need detailed data to:
Look at how plan benefit designs, cost-sharing
requirements, and formularies affect the use of prescription drugs by
enrollees. This would help us evaluate the effects of proposals to
change Part D's standard benefit, other coverage rules, and monitor how
well plans control drug spending for both the program and enrollees.
Evaluate whether plan features are related to a
beneficiary's compliance with drug therapy and with use of Part A and
Part B services.
Analyze the characteristics of plans that have higher
quality measures or lower costs than other plans.
The types of data we need include:
Information describing plan benefit designs, formularies,
and bids;
Prescription drug events that can be linked to claims for
Part A and Part B services provided to the same beneficiary. These data
identify the plan, the prescriber, and the pharmacy that dispensed the
product, as well as the drug dispensed and amounts paid by the patient,
plan, and other payers.
Levels of enrollment and disenrollment in individual
plans, including numbers of enrollees who receive low-income subsidies.
Data on drug prices and negotiated price concessions
aggregated in such a way as to conceal proprietary information.
Information for plan payment adjustments based on health
status, reinsurance payments, and risk corridor payments.
Other plan-level data on rates of prior authorizations,
nonformulary exceptions, appeals, coordination of benefits for out-of-
pocket determination, call-center operations, grievances, and consumer
satisfaction.
Of course, plan-level data are often proprietary. The Commission
has a history of negotiating data use agreements and taking measures to
protect the security and confidentiality of person-level and plan-level
data. Nevertheless, stakeholders consider it more important to prevent
disclosure of certain types of data, such as rebates from
pharmaceutical manufacturers. Without access to data on aggregate price
concessions, the Commission will not be able to examine program costs
thoroughly. However, even in the absence of rebate information, the
Commission could still address relationships between plan features and
drug utilization so long as we obtain access to other types of data
such as Part D claims.
The Commission is concerned that congressional support agencies do
not now receive Part D claims data. In MedPAC's June 2005 Report to the
Congress, the Commission recommended that the Secretary should have a
process in place for timely delivery of Part D data to congressional
support agencies to enable them to report to the Congress on the drug
benefit's impact on cost, quality, and access.
Under the law, CMS has clear authority to collect Part D claims and
other data for purposes of making payments. Until CMS issued a proposed
regulation last October, it was less clear whether the agency had
authority to use Part D data for other nonpayment purposes. It has also
been unclear whether CMS has legal authority to provide claims and
other Part D data to other Federal agencies, to congressional support
agencies, and to private researchers. CMS's proposal would allow the
agency to share Part D data with Federal agencies and researchers under
the same safeguards that exist for the release of other Medicare data.
If this regulation goes forward, it will address many of our concerns
about gaining access to Part D claims. However, if the regulation or
new legislation authorizing release of Part D claims does not move
forward, that outcome would severely inhibit the Commission from
carrying out its duty to provide policy recommendations to the
Congress.
Question: Growth in number of Part D plans. The number of stand
alone prescription drug plans and MA prescription drug plans grew
exponentially in 2007. Why has this growth occurred? Does MedPAC intend
to track the Medicare margins of these plans like you do for other
providers?
Answer: The Commission's analysis of plan offerings for 2007 in
MedPAC's March 2007 Report to the Congress shows that sponsors are
offering about 30 percent more stand-alone prescription drug plans
(PDPs) and 25 percent more Medicare Advantage Prescription Drug (MA-PD)
plans this year. New PDPs for 2007 emerged in every region of the
country, and the median number of plans offered in each region rose
from 43 in 2006 to 55. A number of factors account for this new plan
entry.
Several organizations began offering nationwide plans in 2007.
Nationwide plans refer to the same plan name that a sponsor offers in
each of the country's 34 PDP regions. In 2007, 17 organizations are
offering at least one nationwide PDP in each region, and those
organizations together account for 80 percent of all stand-alone plans.
In 2006, 10 organizations had at least one nationwide plan, and those
organizations offered 62 percent of all PDPs. Some of the new
nationwide plan offerings were from organizations that operated plans
in nearly all PDP regions for 2006. In other words, these near-national
organizations chose to expand their presence to all PDP regions for
2007. Other organizations were entirely new entrants into the Part D
market for 2007. Some of those organizations had sponsored Medicare
drug discount cards during the period after the prescription drug law
was passed in 2003 but before Part D began in 2006.
As is also true for Medicare Advantage plans, the Commission cannot
measure margins of Part D plans as we do for other providers in
Medicare's fee-for-service (FFS) payment systems. The reason is that
while most FFS providers submit cost reports to CMS, private plans do
not.
Question: The Need for a Common Assessment Tool for Post-Acute
Care. Mr. Hackbarth's testimony discusses the need for a common
instrument for patient assessment across post-acute care settings. How
would care for Medicare beneficiaries be improved by the development
and use of a single assessment tool for post-acute care? Do you have
concrete recommendations that can move us forward in a meaningful way
on this front?
Answer: Until a common instrument gathers patient assessment
information across settings, it is impossible to compare the value of
services furnished to beneficiaries. Without diagnosis and co-morbidity
information, we can not compare the care needs, service use, costs, and
outcomes. We do not know, for example, if providers with high costs
treat more complicated patients or whether their higher costs are
associated with inefficiencies. Without comparable outcomes measures,
we can not determine whether high service use produced better patient
outcomes or whether the additional services added little of clinical
value to the patient. Outcomes information that is adequately risk-
adjusted would allow the program to compare practice patterns across
settings and their relative effectiveness at treating specific types of
cases, especially in settings where there is overlap in the types of
patients treated, such as post acute care. In settings with poor case
mix adjustment methods for the prospective payment systems, such as
SNFs and HHAs, more detailed clinical information could also be used to
improve the patient classification systems used for risk adjustment and
payment.
Providers and clinicians could also use comparable diagnosis and
outcomes information to develop evidence-based guidelines for treating
patients with specific clinical conditions. Providers could use data-
based guidelines to predict a patient's expected care needs and
establish anticipated outcomes. Evidence-based benchmarks could
delineate typical resource use by condition and indicate over and under
provision of services.
Section 5008 of the Deficit Reduction Act of 2005 required that the
Secretary establish a 3-year demonstration program by January 1, 2008
to develop and gather uniform patient assessment information for use at
hospital discharge and across post acute care settings. In March 2007,
CMS and its contractor convened a technical advisory panel to gather
feedback on a draft of the tool. Participants will be recruited this
spring and testing of the tool is planned for the summer. The
demonstration will begin in one market in January 2008 with broader
implementation planned for April 2008. The Commission is watching this
demonstration with great interest.
__________
Questions Submitted by Mr. Doggett to Mr. Hackbarth
Question: In June 2006, MedPAC reported in the chapter on
outpatient therapy services that CMS needs more outcomes data before it
can develop an alternative to the therapy caps. Contractors working for
CMS have already recommended four outcome measurement tools--including
the NOMS database which has patient outcome data on speech-language
pathology, but has not taken further action. Would you support CMS
moving quickly in implementing a pilot program that would gather data
through these four recommended measurement tools?
Answer: In its report to CMS, researchers at Computer Sciences
Corporation (CSC) suggested that four patient assessment tools--the
Patient Inquiry Tool, the National Outcomes Measurement System (NOMS),
the Outpatient Physical Therapy Improvement in Motion Assessment Log
(OPTIMAL), and the Activity Measure--Post Acute Care (AM-PAC)--be
evaluated for use in an alternative payment system. While each tool is
appropriate for evaluating the patients it was designed to evaluate,
none could be used to evaluate all types of outpatient therapy
(physical and occupational therapy and speech-language pathology
services), for all patient conditions in every outpatient setting. For
example, the NOMS evaluates only speech-language-pathology (SLP)
services, the OPTIMAL evaluates only physician therapy (PT) services,
the AM-PAC does not fully evaluate patients' swallowing difficulties,
and the Inquiry tool does not evaluate SLP services. Looking at the
performance of these tools is a good thing for CMS to do. One of the
goals of the pilot would be to assess how each of these tools performs
in a variety of settings, across a wide range of patient conditions,
and for which types of therapy; however, the concern is that such a
pilot would not produce an assessment tool that works in all settings.
Question: In MedPAC's 2006 report, it specifically discussed the
fact that we cannot gather data on speech-language pathologists because
they do not have a Medicare supplier number that can be tracked. Since
that report, another event has taken place that has made this issue
even more relevant. In December, Congress passed legislation allowing
Speech-Language pathologists (and others) to voluntarily participate in
the pay-for-reporting program. However, without a supplier number,
speech-language pathologists have little incentive to participate
because the bonus payment will go to the entity holding the supplier
number--not to the speech-language pathologist. Given MedPAC's interest
in this latest report in pay-for-performance, shouldn't we make sure
that providers who are eligible for the bonus program have an incentive
to participate in it?
Answer: We haven't taken up this particular question in the
Commission; however, it touches on a larger question regarding the
administration of pay-for-performance programs: Must pay-for-
performance bonuses be awarded at the individual provider level to
improve quality, or could the bonuses also be effective when directed
at the provider's affiliated organization?
On the one hand, pay-for-performance initiatives may be most
successful when they direct bonuses to the provider most responsible
for administering the care in question. Under this theory, removing the
provider from the direct receipt of the bonus could dilute the desired
behavioral response (i.e., improved performance).
On the other hand, the parent entity, such as the hospital or
skilled nursing facility, that receives payment for the service has an
incentive to establish a system to reward its employees or contractors
who report data and provide high quality care. It is possible that such
systems may have a wider effect on the general delivery of care, than
if rewards were exclusively between Medicare and individual providers.
Question: In CMS's latest 5-year review of Part B billing codes,
payment for evaluation and management (E&M) services were increased,
and as a result, payment for work relative value units (RVUs) were all
depressed by 10% to offset the increase to E&M services. For
psychologists and social workers who provide mental health services,
this cut is especially harmful as they cannot bill for E&M services
that are within their scope of practice. Would MedPAC support removing
psychologists and social workers from the 5-year review cuts?
Alternatively, would MedPAC support allowing psychologists and social
workers to bill for E&M services?
Answer: The Commission has not taken up this question.
__________
Questions Submitted by Mr. Pomeroy to Mr. Hackbarth
Question: When calculating Medicare margin's for Home Health
providers, I understand that the Medicare Payment Advisory Committee's
analysis excludes over 1600 agencies that are classified as ``hospital-
based'' from the margin calculation. I also understand that in some
locations, like North Dakota, these agencies are either the sole source
of home health services or the primary provider. Isn't it necessary
that these agencies be incorporated into any evaluation on the impact
of a payment rate freeze on access to care? What would be the simple
average margin, across all agencies large and small, if these agencies
were included?
Answer: In 2005, the aggregate margin for all agencies was 13.8
percent, a number which includes hospital-based agencies. (The margin
for freestanding providers was 16.7 percent.) Previous research
suggests that the discrepancy between hospital-based and freestanding
margins is not attributable to factors that would cause the margins of
efficient providers to differ. Given this analysis, we do not think the
margins should be combined into a single average.
Hospital-based data shows higher costs in part because hospitals
shift overhead costs to the hospital-based home health provider; if
this cost shifting did not happen, the hospital-based margin would be
higher. Furthermore, there is nothing we see in the patient or other
economic characteristics of hospital-based home health agencies that
would explain these higher costs. A review of 2001 data found that
hospital-based providers were similar to freestanding ones in many
respects, such as case mix, average reimbursement per agency, volume of
patients, and average number of visits (MedPAC 2004). Of course,
hospital-based and freestanding providers deliver care in the same
setting--the beneficiary's home--so the differences we see in costs are
not due to different settings.
__________
Questions Submitted by Mr. Ramstad to Mr. Hackbarth
Question: CMS's assumes that all imaging equipment is in use about
50% of the time. In its June 2006 report, MedPAC presented survey
results that showed that MRI equipment was in use more than 90% of the
time and CT equipment was in use 70% of the time. MedPAC suggested that
imaging procedures may be paid more than twice the appropriate amount,
based on these survey results. Independent analysis of the MedPAC
survey shows that less than 1% of the independent diagnostic testing
facilities nationwide responded to the survey. The survey did not cover
x-ray or ultrasound equipment, or many other imaging modalities. How
would you characterize the MedPAC findings which are based on survey
responses from 80 physician offices and testing facilities in 6
selected geographic areas, and only surveyed use of MR and CT
equipment?
Answer: CMS assumes that imaging machines (and all other medical
equipment) are used 50 percent of the time a practice is open for
business, which may overstate the cost of equipment. In order to test
this assumption, we surveyed imaging providers in six markets (Boston;
Miami; Greenville, South Carolina; Minneapolis; Phoenix; and Orange
County, California) to find out how frequently they were using MRI and
CT machines. We focused on MRI and CT machines because of their high
cost and the rapid spending growth for MRI and CT services.
In our June 2006 Report to the Congress, we acknowledged that the
survey is not nationally representative because it is based on six
markets. We did not intend for it to be representative--the data was
meant to help the Commission and CMS focus on the issue. However, all
providers in one of those markets that submitted a Medicare claim for
an MRI or CT service in 2003 had the same chance of being selected for
the survey.
The survey found that providers were using these machines
significantly more than 50 percent of the time, which should lead to
lower costs per use. The survey results raise questions about whether
CMS currently underestimates how frequently these machines are used.
Therefore, we suggested that CMS revisit its assumption that all
equipment is used 50 percent of the time. In its final rule on the 2007
physician fee schedule, CMS agreed that the 50 equipment utilization
assumption should be examined for accuracy.
The Commission did not suggest that imaging procedures may be paid
twice the appropriate amount. Rather, we estimated that increasing the
equipment use assumption to 90 percent and using a more updated
interest rate assumption would lower equipment price per service by 50
percent. In addition to equipment, there are other parts of practice
expense payments: nonphysician clinical staff, supplies, and indirect
costs. We did not model the impact of changing the equipment use
assumption on total practice expense payment rates.
It is important to note that the American Medical Association
(AMA)/specialty society Relative Value Update Committee recommended
that CMS use a rate higher than 50 percent for all equipment, while
permitting specialty societies to present evidence that specific items
are used less frequently. The AMA and specialty societies are about to
field a new multi-specialty survey of physician practice costs that
will include questions on how frequently practices use high-cost
equipment.
Please feel free to follow up with me or Mark Miller, MedPAC's
Executive Director (202-220-3700) on any of these issues. Again, we
appreciate the opportunity to testify on our March 2007 report and
appreciate the Committee's interest in this area.
[Submissions for the Record follow:]
Statement of Alliance for Quality Nursing Home Care
The Alliance for Quality Nursing Home Care (the ``Alliance'')
represents seventeen of the nation's largest providers of long term and
post-acute care and services. The roughly 2,000 skilled nursing
facilities (``SNFs'') owned and operated by Alliance companies care for
more than 300,000 older Americans and employ more than 300,000 people
in 49 States. As compared to Medicare-certified SNFs as a whole,
Alliance members disproportionately provide skilled nursing care to
Medicare beneficiaries.
The quality of care Medicare beneficiaries receive today--and the
quality of care many of us will require in the decades ahead--relates
directly to the Federal Government's payment policies, particularly
Medicare and Medicaid. The Alliance is deeply concerned that, all too
frequently, the Federal Government's approach to funding for Medicare
and Medicaid conflicts directly with its goals of sustaining and
improving the quality of patient care. When Medicare funding for
skilled nursing services is stable, quality of care and services
improves. When Medicare funding is inconsistent and unstable, our
nation's long term care infrastructure deteriorates, to the detriment
of every senior today and every retiree tomorrow.
At a time when Congress and the Centers for Medicare and Medicaid
Services (``CMS'') increasingly look to develop a more rationale post-
acute Medicare benefit, an objective that the Medicare Payment Advisory
Commission (``MedPAC'') has long championed, we remain concerned that
MedPAC's restrictive view of Medicare payments to SNFs undermines not
only care and services for Medicare beneficiaries, but for all nursing
home patients as well. In addition, we are concerned that MedPAC's
short-term recommendations undermine its long-term goal of a more
rational and unified post-acute benefit.
MedPAC's sole recommendation is that SNFs receive no market basket
adjustment in FY 2008. Its March 1, 2007 report notes that, if Congress
were to adopt this recommendation, payments to SNFs would be $250
million to $750 million less next year than the Medicare baseline
otherwise would allow. Given that the President's proposed FY 2008
budget also eliminates the market basket increase for SNFs and scores
the impact at $1 billion, it seems likely that the impact will be at
least $750 million. We respectfully submit that this recommendation is
short-sighted and urge that Congress reject it in favor of a more
expansive view to assure that all SNF patients continue receiving high
quality care and services.
The Relationship between the SNF Marketplace and Medicare Payments
A fair evaluation of MedPAC's recommendations requires an
appreciation for the economic realities for SNF operations. In SNFs
today, Medicare pays for 12% of patients but represents 26% of
revenues, Medicaid pays for 66% of patients but represents only 50% of
revenues and private sources (commercial insurance, long term care
insurance and out-of-pocket expenditures) pay for 22% of patients but
represent 24% of revenues. While MedPAC estimates that SNFs Medicare
operating margins in 2007 will be 11%, MedPAC does not acknowledge that
Medicaid operating margins are negative 7% and private payment
operating margins are less than 2%.\1\
---------------------------------------------------------------------------
\1\ Source: The Lewin Group analysis of Lewin survey data from
multifacility organizations.
---------------------------------------------------------------------------
As a result, according to independent analysis, overall after-tax
operating margins for SNFs were only 2.9% in July 2006, the lowest
overall operating margins of any Medicare Part A provider group.
[GRAPHIC] [TIFF OMITTED] T6780A.002
Given these economic realities, robust and positive Medicare
operating margins effectively subsidize negative Medicaid operating
margins. The Medicare and Medicaid programs, moreover, pay for three of
every four SNF patients. While Medicare cross-subsidization of Medicaid
may not be optimal policy in the long run, is it is necessary at least
until the inadequacy of Medicaid payments is addressed effectively.
Over the past decade, moreover, Medicare funding for SNFs has been
volatile. The Balanced Budget Act of 1997 (``BBA'') slashed Medicare
payments to SNFs and forced 20% of SNFs into bankruptcy. In 1999 and
2000, Congress enacted temporary additional payments to help SNFs
overcome the most severe consequences of BBA. Thereafter, CMS made
certain administrative changes designed to maintain some stability in
Medicare payments. Ultimately, in 2006, all Congressional add-ons
expired and CMS refined the payment system to better recognize the
growing intensity of rehabilitation services Medicare beneficiaries now
receive in SNFs.
The net effect of these changes is that, only in 2006 did average
Medicare payments to SNFs return pre-BBA levels. In 1998, average per
diem payments were $367. In 2006, average per diem payments were
$366.\2\
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\2\ United BioSource analysis of Alliance database.
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Nursing Home Quality Has Improved Significantly
It is noteworthy that America's SNFs have led the quality movement
despite comparatively low overall operating margins and volatile
Medicare payments. The sector's leadership--which includes the Nursing
Home Quality Initiative (a partnership between CMS and providers), the
Quality First initiative (a voluntary provider effort) and most
recently the Advancing Excellence in America's Nursing Homes campaign
(a partnership among providers, consumers, unions, private foundations
and CMS)--has helped to improve the overall quality of care in our
nation's nursing homes.
As part of CMS' Nursing Home Quality Initiative, the agency now
reports comparative clinical data for use by consumers in choosing SNFs
and by SNFs to benchmark and improve performance. Quality First was the
first nationwide, publicly articulated pledge by providers in any
healthcare sector to voluntarily establish and meet quality improvement
targets. The Advancing Excellence campaign, which was launched in
September 2006 and is modeled on the recently completed ``100,000
Lives'' campaign in the acute care sector, seeks to improve quality in
eight clinical and operational domains over a 2-year period. Taken
together, these efforts underscore that SNFs are committed to
accountability for the quality of care and services they provide, as
well as prudent use of government resources.
Perhaps more importantly, these efforts are showing positive
outcomes. For example, from 1999 to 2004, the number of severe quality
of care citations in America's nursing homes dropped by almost 60%.
[GRAPHIC] [TIFF OMITTED] T6780A.003
Similarly, over the same period, clinical processes like pain
management and vaccination rates showed marked and sustained
improvement as well.
[GRAPHIC] [TIFF OMITTED] T6780A.004
Consumer satisfaction with nursing home care also reflects
noteworthy quality improvement. In 2005, 80% of nursing home patients
and their families found the care SNFs provided to be excellent or
good. By contrast, 80% of Americans rate their overall healthcare as
excellent or good.
The Alliance remains committed to sustaining these quality
improvements for the future. However, sustained quality improvement
depends on maintaining the stable Medicare funding which the sector has
begun to enjoy in the past few years.
Congress Should Reject MedPAC's Recommendation for FY 2008
MedPAC specifically acknowledges that its recommendation that SNFs
receive no market basket increase in FY 2008 is based solely on its
evaluation of Medicare payments to SNFs. Consequently, MedPAC directly
rejects any consideration of overall operating margins in formulating
its recommendation.
While this may be consistent with MedPAC's legislative charter,
Congress certainly is not so limited. Congress should base its decision
not only on budgetary concerns with respect to the Medicare program, it
also should assess the impact on the provision of care and services
overall. Given the recent history of volatility in Medicare payments to
SNFs, the importance of robust Medicare margins to overall SNF
operating margins and therefore to assuring that SNFs have the
resources necessary to continue quality improvement efforts, Congress
should reject MedPAC's recommendation that Congress forego the market
basket increase that current Medicare law otherwise would afford to
SNFs.
MedPAC's March 1 report does attempt to address the effect of
Medicaid payments on overall margins. Its arguments, however, are
unpersuasive. First, MedPAC asserts that Medicaid payment rates are
adequate because, since the elimination of the Boren Amendment in 1998,
Medicaid payments to SNFs have risen and State revenues in 2006 and
2007 have grown. In fact, Medicaid payment rates prior to repeal of the
Boren Amendment were inadequate, such that growth since 1998 does not
reflect adequacy of Medicaid payments. Indeed, the gap between the
reasonable cost of care and Medicaid payments to nursing facilities has
grown consistently since 1999.
[GRAPHIC] [TIFF OMITTED] T6780A.005
The fact that State revenues increased in 2006 and 2007, moreover,
ignores the fact that, earlier in the decade, State revenues were
severely threatened and, as a result, Medicaid payments were
undermined, particularly given that, in more challenging economic
periods, Medicaid enrollment swells. While overall Medicaid
expenditures may increase in such circumstances, this does not reflect
more robust payments for services. Rather, it reflects more enrollees,
which places even greater strain on State Medicaid budgets and prompts
even more aggressive cost containment initiatives.
It is noteworthy that historic reports from the Kaiser Commission
on Medicaid and the Uninsured, the very group whose work the MedPAC
report cites in support of its argument, has a long history of reports
to the contrary.\3\ Congress itself recognized the financial straits
States faced earlier in the decade, and the adverse impact on Medicaid
programs, by temporarily increasing the Federal Medicaid matching rate
in the Federal Fiscal Relief Act.\4\
---------------------------------------------------------------------------
\3\ See, e.g., the following Kaiser Commission reports, State
Fiscal Conditions and Health Coverage: An Update on FY2004 and Beyond
(September 2003), Medicaid Spending: What Factors Contributed to the
Growth Between 2000 and 2002? (September 2003); The Current State
Fiscal Crisis and Its Aftermath (September 2003); States Respond to
Fiscal Pressure: State Medicaid Spending Growth and Cost Containment
(September 2003); State Responses to Budget Crisis in 2004: An Overview
of Ten States (January 2004); Is the State Fiscal Crisis Over? A 2004
State Budget Update (January 2004), States Respond to Fiscal Pressure:
A 50-State Update of State Medicaid Spending Growth and Cost
Containment Actions (January 2004); The Role of Medicaid in State
Economies: A Look at the Research (April 2004), State Fiscal Conditions
& Medicaid, April 2004 (April 2004), Medicaid and the 2003-05 Budget
Crisis--State Case Studies (August 2005), available at www.kkf.org/
statepolicy/budgets.cfm.
\4\ Kaiser Commission on Medicaid and the Uninsured, Financing the
Medicaid Program: The Impact of Federal Fiscal Relief, April 2004 Fact
Sheet (April 2004), available at www.kff.org/statepolicy/budgets.cfm.
---------------------------------------------------------------------------
MedPAC also argues that paying nursing facilities higher Medicare
rates misdirects resources because facilities with higher Medicare
census benefit from additional payments but such payments should be
directed to facilities with higher Medicaid census. This claim
misapprehends the ownership structure of a majority of America's
nursing homes. Most nursing homes are not owned independently as
freestanding facilities. Rather, they are part of multi-facility
organizations. Within multifacility structures, providers cross-
collateralize across all facilities. Operating losses in facilities
with higher Medicaid census are offset by operating gains in facilities
with higher Medicare census. The facility-by-facility approach MedPAC
suggests is not in keeping with the operating realities of the nursing
home financial environment.
In addition, MedPAC's recommendation for FY 2008 threatens its
longer-term objective to develop a unified and more rational post-acute
benefit. As part of this objective, MedPAC has encouraged policy
changes that create incentives for Medicare post-acute patients to
receive care and services in the least costly setting consistent with
appropriate quality outcomes. CMS has acted on these recommendations in
various ways, including refinements to the Resource Utilization Groups
(``RUGs'') payment system for SNFs effective in FY 2006. These
refinements have encouraged SNFs to care for higher acuity patients,
particularly those patients requiring short-term rehabilitation care.
Eliminating the Medicare market basket increase in FY 2008 would
deprive SNFs of resources necessary to continue expansion of care for
these beneficiaries, undermining the effort to rationalize the post-
acute benefit. Since SNFs frequently are the lowest cost settings in
which such services may be provided, the intermediate- and long-term
impact could well be to increase overall Medicare post-acute spending
by continuing to provide post-acute care in higher cost settings. For
example, based on CMS data for FY 2004, the average cost to Medicare
for an episode of care in a SNF was $7,000, while the average cost to
Medicare for a comparable episode of care in an Independent
Rehabilitation Facility was $12,525, or 78% higher than the cost per
episode of care in a SNF. Slowing the trend toward SNFs treating a
growing percentage of Medicare post-acute patients similarly slows
efforts to rationalize the post-acute system and better control
Medicare spending growth in the future.
In conclusion, the Alliance respectfully urges Congress to reject
MedPAC's recommendation that SNFs receive no market basket increase in
FY 2008.
Statement of American Hospital Association
The American Hospital Association (AHA), representing nearly 5,000
member hospitals, health systems, networks and other providers of care,
is pleased to submit this statement for the record regarding the
hearing on the Medicare Payment Advisory Commission's (MedPAC) Annual
March Report to Congress.
Inpatient and Outpatient Update. The AHA commends MedPAC for
recommending at its January 2007 meeting that Congress implement a full
market basket update, currently estimated at 3.1 percent, for both the
inpatient and outpatient prospective payment systems (PPS) in fiscal
year (FY) 2008. A full market basket update is essential if America's
hospitals are to keep up with inflation and fulfill our roles of caring
for patients, preserving the safety net, being ready for unexpected
emergencies and disasters, and modernizing the healthcare system.
According to MedPAC estimates, hospitals' overall Medicare
margins--including the costs of inpatient, outpatient and post-acute
care services--will reach a 10-year low in 2007 at negative 5.4
percent.
[GRAPHIC] [TIFF OMITTED] T6780A.006
According to AHA annual survey data, a staggering 65 percent, or
more than 3,000 hospitals, lost money in 2005 serving Medicare
patients. These statistics clearly indicate that Medicare payments are
inadequate and full market basket increases for both inpatient and
outpatient hospital services are critical.
Despite MedPAC's recommendation, the president's FY 2008 budget
request would reduce hospital inpatient PPS reimbursements by $13.8
billion and outpatient PPS payments by $3.4 billion over 5 years. These
cuts would jeopardize the ability of hospitals to serve their patients
and their communities and should be rejected by Congress.
In addition to recommending a full market basket update for
inpatient and outpatient hospital services, MedPAC made a series of
other payment recommendations.
Inpatient Rehabilitation Facilities Update. The Commission
recommended an update of only 1 percent for inpatient rehabilitation
facilities--only about a third of the actual expected 3.1 percent
increase in costs due to inflation. These facilities are run by
specially trained doctors and staff who treat both patients'
rehabilitation and medical needs. While the number of inpatient
rehabilitation facilities is stable, the strict enforcement of the
``75% Rule,'' which sets key conditions a facility must meet to qualify
for reimbursement under Medicare, reduced patient volume by 10 percent
and increased the severity of patients seen by 6 percent in 2005. The
75% Rule, even at a transitional level, has already changed the course
of inpatient rehabilitation facility payment. To avoid further erosion
of beneficiary access to quality inpatient rehabilitation care, a full
market basket update to account for inflation is warranted.
Indirect Medical Education. In January, the Commission recommended
that Congress reduce the indirect medical education adjustment in FY
2008 by 1 percentage point--from 5.5 percent to 4.5 percent--concurrent
with the Centers for Medicare & Medicaid Services' efforts to implement
a payment system based on severity-adjusted diagnosis related groups.
However, it is not clear at this time what, if any, adjustments will be
made for patient severity, the size of these changes or how these
changes will affect the indirect medical education adjustment.
The AHA opposes this recommendation, as a one percentage point
reduction equates to a 20 percent cut in indirect medical education
payments.
The indirect medical education adjustment is intended to help
compensate teaching hospitals for the higher costs of training
physicians, research-related patient care costs, treating sicker
patients and providing more complex and costly services. Many teaching
hospitals have trauma centers, transplantation services, and most use
cutting-edge new technologies. In addition, teaching hospitals are also
preparing to be first-line responders in the event of a flu pandemic,
or biological or chemical attack.
Arbitrarily targeting indirect medical education payments for
reductions may lead to reduced access to high-caliber medical education
for our future physicians. We urge Congress to consider the benefits
provided by teaching hospitals and reject any cuts to indirect medical
education.
We appreciate the opportunity to submit this statement for the
record and look forward to working with members of the Subcommittee and
the MedPAC commissioners to ensure that Medicare reimbursement keeps
pace with inflation and the changing needs of our healthcare system.
Americans depend on hospitals to be there, ready to serve, 24 hours a
day, 365 days a year. Reversing the dramatic decline in hospitals'
Medicare margins is essential to ensuring hospitals' ability to fulfill
this expectation.
Statement of Mid-Florida Cardiology Specialists, Orlando, Florida
It is imperative that we receive a voice every time you are meeting
on the healthcare issues that are so greatly affecting our practice.
First let me express our great appreciation for averting the 5% cut by
your congressional action of December 8, 2006. But the effects of the
other budget adjustments have taken a heavy toll on cardiology
practices in the Central Florida area. We are experiencing lay offs of
personnel and searching for other areas to save a few pennies to be
able to continue to provide services to the Medicare population of
Florida.
Two areas have had great impact on this cardiology group. First the
imaging cap for the technical component of the global service provided
by our office. These codes affected by this imaging cap will have a
very detrimental effect on services provided to the Medicare patients
in our office. The nuclear stress test reduced $55.94 which is 6%. It
would be incomprehensible to imagine what the 5% averted cut would have
added to this already devastating reimbursement system. This test is
only one of the imaging services that we provide.
We have a total of three fee schedules to consult to try to figure
out what our reimbursement is going to be in 2007. There is a 2007 Fee
for Service Participating Physician Fee Schedule. Then there is a fee
schedule for the imaging caps. Then there is another fee schedule for
the ``carrier priced'' codes. It is challenging at best.
The second area where we are greatly affected is the work relative
value decrease which was lowered to maintain budget neutrality. Each
code for 2007 decreased by 0.8994% for the relative work value portion
of the code. The majority of our codes decreased with very few
increasing. Out of the 217 codes we have priced in our system, only 22
codes increased.
With every committee meeting that you have, you hold the very
future of many practices in your hands. I have been with this practice
for 19 years and these physicians provide excellent and compassionate
care to our Medicare population. We can not continue to do so at the
current reduction rate of reimbursement. We have been unable to find a
``bandage'' large enough to cover the wound this constant downward
spiral is opening. I know this is a challenge, but to continue to cut
the physician's fee schedule is NOT the answer.
Statement of National Association for Home Care and Hospice
The National Association for Home Care and Hospice (NAHC) is the
largest national home health trade association. Among our members are
all types and sizes of Medicare-participating care providers, including
nonprofit agencies such as the VNAs, for-profit chains, public and
hospital-based agencies and free-standing agencies.
NAHC is pleased to submit this statement for the record to the
Committee on Ways and Means Subcommittee on Health on the Medicare
Payment Advisory Commission's (MedPAC) recommendations and report to
Congress on home care payment adequacies. In January 2007, MedPAC voted
to recommend that Congress eliminate the home health market basket
update for calendar year 2008. The MedPAC recommendation is based upon
a number of factors including access to care, supply of providers,
volume of services, quality of care, access to capital, and payment and
costs.
NAHC believes that MedPAC's recommendation fails to address the
true financial status of home health agencies. The recommendation is
based on an incomplete analysis of Medicare cost report data that
excludes a significant segment of home health agencies, ignores
essential home care service costs, and relies on a methodology that
treats home health services as if it were provided by one agency in
just one geographic area. If accepted, the MedPAC recommendation will
severely compromise continued access to care.
In specific response to the recommendation, we note the following:
The Medicare home health prospective payment system
(HHPPS) has been found to be seriously flawed and extremely ineffective
at predicting the costs of care delivery. As a result, care for some
types of patients can be reimbursed at significantly higher rates than
agencies' care costs while Medicare reimbursement for other patients is
woefully inadequate. MedPAC has found that the payment distribution
system of HHPPS fails in over 75% of the case categories to fairly set
rates in relation to the level of care. Payment is either significantly
lower or greater than justified for the level of care. These and other
findings have lead Medicare to undertake a wholesale revision of HHPPS
that is expected to take effect in January 2008.
The considerable shortcomings in the home health PPS are
further illustrated by a dramatic range in profits and losses among
home health agencies (HHAs). About 31.0% of all HHAs experienced
financial losses under Medicare in 2002; that figure increased to 33.0%
in 2004. A 5-year freeze would increase the number of agencies with
Medicare margins of zero or below to around 60%. These figures actually
understate losses because Medicare cost report data excludes the costs
of numerous items that are legitimate care expenses, such as telehealth
services and respiratory therapy.
MedPAC's financial analysis of Medicare home health
agencies, alleging a 16% margin, is unreliable. First, it does not
include any consideration of the 1723 agencies (21%) that are part of a
hospital or skilled nursing facility. In some States, hospital-based
HHAs make up the majority of the providers (MT 63.2%; ND 65.4%; SD
60.5%; OR 58.3%). These HHAs have an average Medicare profit margin of
negative 5.3%. Second, the MedPAC analysis uses a weighted average,
combining all HHAs into a single unit, rather than recognizing the
individual existence and local nature of each provider. This approach
fails to portray the real status of HHAs that are experiencing a wide
range of financial results. Third, MedPAC fails to evaluate the impact
on care access that occurs with the current wide ranging financial
outcomes of HHAs. Instead, it sees a single national average profit
margin as indicative of over 8,000 very diverse HHAs. When all HHAs are
included in the analysis, the true average Medicare profit margin is
3.12%.
With the existing HHPPS, an agency's mix of patients
(case-mix) can result in significant profits or losses unrelated to
efficiency or effectiveness of care Losses exist for agencies of all
sizes and in all geographic locations that are a result of the flawed
HHPPS. These agencies are essential care providers in their
communities. An across-the-board cut or freeze would do tremendous
financial damage to those agencies that are at break-even or losing
money on Medicare. Further, it would interfere with Medicare's effort
to solve payment rate concerns with a reformed HHPPS in the near term.
Home health agencies are already in financial jeopardy as
a result of Medicaid cuts and inadequate Medicare Advantage and private
payment rates. Ongoing study of home health cost reports by the
National Association for Home Care & Hospice indicates that the overall
financial strength of Medicare home health agencies is weak, and
expected to diminish further. In 2002, the average all-payor profit
margin for freestanding HHAs was 2.53%. A more recent cost report data
analysis indicates that the average all-payor profit margin for 2004
dropped to 1.55%.
Current reimbursement levels have failed to adequately
cover the rising costs of providing care, which include: increasing
costs for labor, transportation, workers' compensation, health
insurance premiums, compliance with the Health Insurance Portability
and Accountability Act and other regulatory requirements, technology
enhancements including telehealth, emergency and bioterrorism
preparedness, and systems changes to adapt to the prospective payment
system (PPS).
A loss of the market basket inflation update could leave
home health providers no alternative but to cut down on the number of
visits per episode or avoid certain high-cost patients, which could
have potential adverse consequences on a patient's clinical outcome. It
would be difficult for HHAs to continue to lower visit frequency
without compromising quality of care. Outcome Concept Systems, a
national home health benchmarking firm, has found, in general, that
reductions in average visits below 20 visits per episode (the current
average is around 18) result in lower outcome scores.
Medicare home health services reduce Medicare
expenditures for hospital care, inpatient rehabilitation facility (IRF)
services, and skilled nursing facility (SNF) care. For example, a study
by MedPAC shows that the cost of care for hip replacement patients
discharged to home is $3500 lower than care provided in a SNF and $8000
less than care provided in an IRF, with better patient outcomes.
Home health agencies have already experienced a
disproportionate amount of cuts in reimbursement as a result of the
Balanced Budget Act of 1997 (BBA). For example, under the BBA, Congress
expected to reduce Medicare home healthcare outlays in FY 2006 from a
projected $40.4 billion to $33.1 billion. The Congressional Budget
Office (CBO) now estimates that home health outlays for FY 2006 were
$13.1 billion. This reduction is far in excess of the reduction
originally envisioned by Congress, and already has had a profound
impact on beneficiary access to care and home health agency (HHA)
financial viability. Home healthcare as a share of Medicare spending
has dropped from 8.7 percent in 1997 to 3.2 percent today. By 2015 it
is projected to drop to 2.6 percent of total Medicare spending.
Over the past 10 years, the Medicare home health benefit
has been cut nearly every year placing serious financial strains on
home health agencies:
----------------------------------------------------------------------------------------------------------------
Year Impact
----------------------------------------------------------------------------------------------------------------
FY 1998-1999 Home health interim payment system (IPS) was implemented.
During 2 years under IPS Medicare spending for home healthcare
dropped from $17.5 billion to $9.7 billion and the number of
Medicare beneficiaries receiving home health services dropped
by 1 million. Over 3,000 home health agencies closed their
doors.
----------------------------------------------------------------------------------------------------------------
FY 2000 Home healthcare's inflation update was cut by 1.1 percent.
----------------------------------------------------------------------------------------------------------------
FY 2002 Home healthcare's inflation update was cut by 1.1 percent.
----------------------------------------------------------------------------------------------------------------
FY 2003 Home healthcare total expenditures were cut by 5 percent off
previous year's rates.
----------------------------------------------------------------------------------------------------------------
CY 2004 Home healthcare's inflation update was cut by 0.8 percent.
(\3/4\ of year)
----------------------------------------------------------------------------------------------------------------
CY 2005 Home healthcare's inflation update was cut by 0.8 percent.
----------------------------------------------------------------------------------------------------------------
CY 2006 Home healthcare's inflation update of 3.3 percent was
eliminated.
----------------------------------------------------------------------------------------------------------------
NAHC recommends that Congress reject any efforts to reduce the home
health inflation adjustment and support a full market basket update for
Medicare home health services. NAHC suggests that relying on the
ongoing efforts to reform the Medicare Home Health Prospective Payment
System is a better approach to address any concerns with payment rates.
Those efforts are intended to target payment changes in a manner that
more closely aligns the rate to the level of service required by the
patient avoiding excess reimbursement unrelated to patient care. Those
efforts are expected to be implemented in January 2008.
Mr. Chairman, NAHC appreciates the opportunity to provide these
comments to the Committee on Ways and Means Subcommittee on Health on
Medicare home care payment adequacy. We look forward to working with
the Subcommittee as it studies and considers NAHC's recommendations on
MedPAC's report to Congress
Statement of Bruce Yarwood
Chairman Stark, Ranking Member Camp, and Members of this Committee,
thank you for allowing us the opportunity to outline our views--based
on our direct experience--that the Federal Government's approach to
funding Medicare and Medicaid all too often conflicts directly with our
shared goal of sustaining and improving the quality of patient care for
America's seniors and people with disabilities.
The matter at hand is relatively simple. When Medicare funding for
skilled nursing services is stable, quality of care and services
improves. When Medicare funding is inconsistent and unstable, our
nation's long term care infrastructure deteriorates, to the detriment
of every senior today and every retiree tomorrow.
We are appreciative of comments voiced in the past by Members of
this Committee that considering Medicare and Medicaid funding policies
in isolation is short-sighted. We agree, and believe the Medicare
Payment Advisory Commission's (MedPAC's) recommendation that there
should be no annual inflation update is ill-advised, fails to
accurately assess long term care funding necessities, and will
contribute to the deterioration of our nation's long term care system
at a time when every stakeholder can least afford it. Federal Reserve
Board Chairman Ben Bernanke testified on Capitol Hill just yesterday
that Congress ``must budget for the rising costs of retirement and
medical benefits or face a `fiscal crisis' in coming decades.''
Unfortunately, the Administration's proposed FY 2008 Budget
incorporates MedPAC's most recent recommendation regarding the market
basket adjustments for skilled nursing facilities. As a result, the
proposed overall budget would cut Medicare funding for skilled nursing
care by $10 billion over 5 years. Cutbacks of this magnitude will not
only threaten the progress we have achieved working with the Federal
Government to improve care quality, but could impact seniors' access to
much-needed quality long-term care.
In addition, the Congressional Budget Office's (CBO's) new ``Budget
Options'' report to Congress also warns that reducing update factors
``might lead to certain patients having difficultly obtaining post-
acute care.'' The report also states, ``To the extent that patients
faced limited access to post-acute care, they might either remain
longer in a short-stay hospital, return home without receiving post-
acute care, or be discharged to receive long-term care not covered by
Medicare. By reducing the revenue of providers, this option might also
limit their ability to provide high-quality care.''
It is noteworthy, Mr. Chairman, that America's nursing home
providers have led the quality movement. Our sector's leadership--which
is reflected in the Quality First Initiative and our partnership with
the Federal Government's successful Nursing Home Quality Initiative
(NHQI) and recently launched Advancing Excellence in America's Nursing
Homes campaign, has helped to improve the overall quality of care in
our nation's nursing homes. We remain committed to sustaining these
quality improvements for the future.
MedPAC's Recommendations Would Jeopardize Quality of Care
We fear implementation of MedPAC's recommendations would seriously
jeopardize ongoing quality improvement because, among other negative
variables, operating margins would be driven to dangerously low levels.
Skilled nursing facilities already have the lowest operating margins of
all major healthcare provider providers.
Given the dramatic cost increases we face in key areas including
labor, energy, liability and capital, not providing an annual update is
wholly inadequate to maintaining our gains in care quality, especially
as these cost increases stem from factors beyond providers' control.
For example, the shortage of nurses and other direct care workers
coupled with the fact that long term care must compete with other
employers both within and outside the healthcare sector for these
employees, contributes significantly to increasing labor costs. In
addition, we must adjust to the ripple effect that the minimum wage
increase will surely have throughout our profession. So, when operating
margins are further reduced, we are far less able to recruit and retain
qualified care givers, modernize and refurbish aging physical plants
and equipment, acquire and implement new technologies to accommodate
advances in medical practices, and meet the increasingly complex care
needs of an aging population.
MedPAC Must Also Consider Medicaid
MedPAC's exclusive focus on Medicare margins in the long term care
sector does a disservice to those poor frail, elderly and vulnerable
individuals who receive care and services in America's nursing homes.
By ignoring Medicaid operating margins, MedPAC's analysis and
recommendations do not present an accurate picture of the long term
care marketplace. Medicaid is responsible for funding the care for 66%
of patients in America's nursing homes, and those nursing homes lose an
average of $13 per Medicaid patient, per day.
MedPAC's continuing and exclusive focus on Medicare ignores the
real and growing interdependence between Medicare and Medicaid. While
66% of skilled nursing facility patients receive Medicaid benefits,
those benefits account for only half of nursing facility revenues.
Given that the prevalence of Medicaid patients in our nation's nursing
facilities is four times that of the acute care sector, special
consideration of the relationship between Medicare and Medicaid seems
particularly relevant to nursing facility care. While MedPAC does not
include Medicaid as a determinant in recommending government funding
policy, the millions of Medicaid patients who rely upon the care we
provide do not have the luxury of ignoring the broken funding
relationship between both programs.
MedPAC's Recommendations for Skilled Nursing Facilities Should Be
Rejected
It is a public policy error for MedPAC to dismiss the Medicare-
Medicaid ``cross subsidization'' issue as irrelevant to the debate at
hand--despite the fact it has specifically acknowledged this phenomenon
in the past--which is certainly noteworthy. On that basis, MedPac's
recommendations should be rejected, and we make the following
recommendations:
Congress should reject MedPAC's recommendations for
skilled nursing providers, and should maintain the full market basket
for FY 2008.
Congress should amend MedPAC's charter to require the
Commission to consider operating margins of all government payers and
the adequacy of all government funding in making its recommendations.
This approach will enhance economic stability and quality improvements.
Congress should require that MedPAC factor into its
recommendations long term care's progress in improving quality. Funding
volatility undermines providers' ability to remain focused on
continuous quality improvement.
Mr. Chairman, America's seniors cannot afford another setback
generated by the continuing failure in Washington to recognize the
tangible, growing relationship between payment policies and quality
objectives. Our recommendations concerning MedPAC offer an approach
that avoids such a negative scenario, and properly prepares the
nation's long-term care infrastructure for the challenging task ahead.
Thank you for the opportunity to offer these comments on behalf of
millions of professional, compassionate long-term caregivers and the
millions of frail, elderly, and disabled Americans they serve each day.