[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
PAYMENTS TO CERTAIN MEDICARE
FEE-FOR-SERVICE PROVIDERS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MAY 15, 2007
__________
Serial No. 110-41
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
47-174 PDF WASHINGTON : 2009
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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
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.................................................................
C O N T E N T S
__________
Page
Advisory of May 15, 2007, announcing the hearing................. 2
WITNESS
Herb Kuhn, Acting Deputy Administrator, Centers for Medicare and
Medicaid Services.............................................. 6
Mark Miller, Ph.D, Executive Director, Medicare Payment Advisory
Commission..................................................... 21
______
Charles N. Kahn III, President, Federation of American Hospitals. 59
Rich Umbdenstock, President and CEO, American Hospital
Association.................................................... 77
Bruce Yarwood, President, American Health Care Association....... 90
Stanley Brezenoff, on behalf of the American Association of
Medical Colleges, and the Greater New York Hospital Association 96
Christine Chesny, on behalf of National Association for Home Care
and Hospice and the Michigan Home Health Association........... 117
Mary Beth Walsh, M.D., on behalf of American Medical
Rehabilitation Providers Association........................... 125
SUBMISSIONS FOR THE RECORD
American Association of Homes and Services for the Aging,
statement...................................................... 144
Keith G. Myers, statement........................................ 148
Visiting Nurse Associations of America, Boston, MA, statement.... 157
PAYMENTS TO CERTAIN MEDICARE
FEE-FOR-SERVICE PROVIDERS
----------
TUESDAY, MAY 15, 2007
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:05 p.m., in
Room 1102, Longworth House Office Building, the Honorable
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) 225-1721
FOR IMMEDIATE RELEASE
May 15, 2007
HL-11
Chairman Stark Announces a Hearing on
Payments to Certain Medicare
Fee-for-Service Providers
House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA)
announced today that the Subcommittee on Health will hold a hearing on
payments to hospitals, home health agencies, and skilled nursing
facilities. The hearing will take place at 2:00 p.m. on Tuesday, May
15, 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:
The vast majority of Medicare beneficiaries--nearly 82 percent in
2007--receive care within the traditional fee-for-service (FFS)
program, rather than in a private plan under Medicare Advantage.
Payments under FFS are projected to constitute 71 percent of overall
Medicare benefits spending in 2007. Payments to FFS providers are
typically based on a prospective payment system or a fee schedule. The
goal of various Medicare FFS payment systems is to cover the costs that
reasonably efficient providers would incur in furnishing high quality
care.
In announcing this hearing, Chairman Stark said: ``It has been far
too long since our Committee has taken a thoughtful look at the payment
systems for fee-for-service providers. Let's not forget that the vast
majority of Medicare beneficiaries and payments are under the fee-for-
service system. As stewards of the Medicare program, we must take
seriously our oversight responsibilities to ensure that Medicare pays
efficiently and appropriately for quality care.''
FOCUS OF THE HEARING:
The hearing will focus on issues related to payment accuracy and
legislative and regulatory payment refinements for the Medicare
inpatient hospital prospective payment system, outpatient hospital
prospective payment system, home health, long-term care hospital,
inpatient rehabilitation facility, and skilled nursing facility payment
systems.
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noted above.
Chairman STARK. If you could, just take a seat. I'm pleased
to announce Herb Kuhn and Mark Miller are here.
Herb Kuhn is the acting deputy administrator of the Centers
for Medicare and Medicaid Services. During his tenure he has
been a key leader in the movement to transform CMS from a
passive player of health services to an active purchaser of
quality health care. He is a nationally recognized expert on
value-based purchasing and payment policy.
Mark Miller is the executive director of the Medicare
Payment Advisory Commission, a nonpartisan Federal agency that
advises the U.S. Congress on Medicare payment, quality and
access issues. With more than 19 years of health policy
experience, Dr. Miller has held several important policy,
research and management positions in health care. Dr. Miller
served as assistant director of health and human resources of
the Congressional Budget Office. Prior to CBO, Dr. Miller was
the deputy director of health plans at the Centers for Medicare
and Medicaid Service, formerly the Health Care Financing
Administration. Before CMS, Dr. Miller was the Health Financing
Branch Chief at the Office of Management and Budget, prior to
joining OMB. Dr. Miller was a senior research associate at the
Urban Institute.
This program is to ensure that Medicare is an efficient
purchaser of care in both the traditional fee-for-service
program and in the Medicare Advantage program.
As I've said repeatedly, this year no program or payment
system, no matter how big or small, should not be reviewed.
Everything is on the table in terms of refinement, oversight
and adjustment. Medicare inpatient hospital services are the
largest portion of our spending, $106 billion in '06, and CMS
has recently proposed a regulation that would move forward on
MedPAC's recommendation to modify payments based on severity.
I look forward to hearing the details of CMS's proposal and
the hospital industry's reaction. While adjustments to DRGs
along these lines are overdue, I understand that other parts of
that regulation may be problematic for some providers. We'll
return to that issue in a minute.
In '06 Medicare spent $43 billion on care provided by post-
acute providers. That included skilled nursing facilities, home
health agencies, inpatient rehab facilities, long-term care
hospitals. These providers are important in ensuring the health
of our seniors and people with disabilities, however the
question we have to constantly ask is whether we're providing
the right care to the right beneficiary in the right setting at
the right price.
There is a dramatic variation in the costs of care, often
with little or no evidence that outcomes are better in more
costly settings. The guiding tenet for Medicare should be that
the site of care not be dictated by financial incentives but
rather by what's best for the patient. The further challenge
for Medicare is that the four post-acute settings, skilled
nursing, home health agencies, inpatient rehab facilities and
long-term care hospitals, act as individual compartments or
silos and don't function as part of an integrated system.
MedPAC and others have highlighted the need for a post-
acute assessment tool that guides placement decisions based on
the resource needs of the patient regardless of the setting. I
hope CMS is making progress in developing a congressionally
mandated demonstration project on this issue and that we hear
more about that today.
CMS has put forth proposals or is implementing various
regulations that attempt to better align payment incentives and
ensure payment accuracy. I look forward to hearing CMS
testimony on these regulations, however we are hearing from the
industry that many of these regulations, particularly the
inpatient hospital regulations, are nothing but backdoor
attempts to circumvent Congress and cut spending.
I'm loath to intervene in the nuts and bolts of
regulations. I usually think that level of detail is best left
to the experts like Mr. Kuhn. I recognize that the program
needs to make changes to respond to provider behavior. However
a lot of fair questions could be asked about how this behavior
was estimated in reaction to the inpatient hospital regulation
and the magnitude of payment reductions caused by the
adjustment.
Lastly, it boggles my mind that the hospital and post-acute
care providers would stand by silently while we continue to
overpay Medicare Advantage plans. We learned from the CMS chief
actuary a few weeks ago that overpayments to Medicare advantage
plans shorten the life of the Part A trust fund by 2 years.
That's 2 years off of the life of this trust fund where we get
the money to pay the inpatient hospital services and most post-
acute care.
Now the program is not in crisis. We have always done what
we needed in the past to protect Medicare, and I hope we'll
continue to do that. That's one of the reasons we're having
today's hearings.
It's important to note that these overpayments directly and
negatively affect Medicare's financial outlook. Last I looked
it's not as if the plans are treating the hospitals, skilled
nursing facilities, or home health agencies very well. In fact,
I gather payments from the plans often fall short of Medicare's
payment rate under fee-for-service.
I hope that the providers who are here today recognize this
tension and will work with us to protect Medicare and ensure
its continued strength.
Do you think you can add to that or top it, Mr. Camp?
Mr. CAMP. I think I can, actually. Thank you, Mr. Chairman.
Thank you all for coming.
As the Committee seeks to improve the Medicare system we
need to examine how the program pays for both hospital and
post-acute treatments. Medicare currently allows its
beneficiaries, as the Chairman mentioned, to receive care in
four different post-acute settings, long-term acute hospitals,
inpatient rehabilitation facilities, skilled nursing facilities
and in the patient's home.
Medicare payments are seemingly based more on the sign on
the front of the facility than on the care provided. These
differences in payments have a real impact on Medicare's costs.
According to MedPAC a hip or knee replacement patient currently
costs Medicare $3,400 more in an inpatient rehab facility than
at a skilled nursing facility.
The lack of quality and outcome data make it impossible to
compare the two settings. Frankly we don't know whether
patients are being treated in the most appropriate setting. The
separate payment systems and different assessment tools have
resulted in a fragmented post-acute care system and, as the
Chairman said, silos of care, potentially resulting in patients
receiving treatment at higher intensity than necessary, driving
up the cost of the program to taxpayers.
In the Deficit Reduction Act, Congress instructed CMS to
develop a demonstration program that would use a common patient
assessment tool to better compare the different post-acute care
sites. I look forward to hearing what progress has been made in
implementing this important project.
I'd also like to say that I'm deeply concerned about CMS's
continued expansion of the 25 percent rule to freestanding and
grandfathered LTCHs. In 2004, I wrote CMS saying this policy
was misguided. I believe then, as I do now, that MedPAC's call
for patient admission criteria is the way to go. Admission
should be based on clinical criteria not arbitrary quotas.
Simple statistics are denying beneficiaries care at the
appropriate facilities, adding unnecessary hurtles to getting
care they deserve.
We will hear about a proposal to modify Medicare payments
to hospitals. Recently CMS proposed to make significant
refinements to the payment system for inpatient services, which
would adjust payments to account for sicker, more expensive
patients. I've already heard concerns about how CMS has
attempted to anticipate changes in hospitals' coding practices
under the rule, and I look forward to examining how to best
ensure payment accuracy without limiting beneficiary access to
important patient services.
I thank the Chairman for this hearing, and I yield back the
balance of my time.
Chairman STARK. Thank you, and now let's hear from our
first panel.
Mr. Kuhn, would you like to lead off and enlighten us in
any manner you're comfortable?
STATEMENT OF HERB KUHN,
ACTING DEPUTY ADMINISTRATOR,
CENTERS FOR MEDICARE AND MEDICAID SERVICES
Mr. KUHN. Chairman Stark, Mr. Camp, distinguished Members
of the Subcommittee, thank you for inviting me here today to
discuss Medicare's reimbursement systems and payment updates
for acute and post-acute care providers.
The Centers for Medicare and Medicaid Services looks
forward to working with Congress in the coming year to further
reform Medicare's fee-for-service payment systems and to make
strides toward our shared goal of delivering the highest
quality of care to people with Medicare.
As the Administration's fiscal year 2008 budget proposals
and recent rule-making demonstrate, CMS is committed to
ensuring that Medicare providers are paid appropriately and
accurately for services furnished to beneficiaries.
In turn, beneficiaries are entitled to and deserving of
access to high quality care in the most appropriate setting. We
firmly believe that the continued improvement and refinement of
Medicare's payment systems with the aim of making the delivery
of quality care more efficient will bring us closer to
achieving these interrelated goals.
The proposed rule to update hospital inpatient
reimbursement in the coming fiscal year is estimated to
increase payments to more than 3,500 acute care hospitals by
$3.3 billion. CMS is embarking on a third year of refinements
to inpatient prospective payment system based on
recommendations from the Medicare Payment Advisory Commission.
We propose to adopt a severity diagnosis related group system
to better recognize severity of illness and the cost of
treating Medicare patients.
But increasing the number of DRGs from 538 to 745 we will
improve the accuracy of Medicare payments. This follows 2 years
of incremental severity adjustments and last year's movement
from charge-based to cost-based weights. Consistent with the
law, the severity adjustments would be implemented in a budget
neutral manner, neither increasing nor decreasing overall
Medicare spending. This step was taken to account for
improvements in hospital coding.
That hospitals would code more accurately under such
circumstances is a sound and legitimate response supported by
research dating back more than $20. Appropriately however,
payments would increase for hospitals serving more severely ill
patients and decrease for those serving patients who are less
severely ill.
This year's inpatient hospital rule aims to improve the
reliability and quality of care by continuing to expand the
number of publicly reported quality measures. Also for the
first time, CMS is recognizing hospital-acquired conditions and
will ensure that Medicare no longer pays hospitals for the
additional costs of cases with these conditions.
CMS has also issued proposed rules for skilled nursing
facilities, home health agencies, and inpatient rehabilitation
facilities. The SNF proposal provides a 3.3 percent update and
seeks comment on the forecast error adjustment. IRFs are also
given a 3.3 percent update, and the proposal seeks comment on
whether some or all of the existing co-morbidities should be
included and calculated in compliance with the 75 percent rule,
which aims to promote access to care for beneficiaries who
require specialized and intensive rehabilitation care furnished
in rehabilitation facilities.
The proposed rule for home health features the first major
set of refinements since the advent of its prospective payment
system in 2000. Research conducted by Medicare contractor APT
Associates identifies two significant areas for payment
requirement, therapy thresholds and case mix changes. This
research was vetted thoroughly with the stakeholder community
in 2005 and 2006.
Finally, CMS has issued the final long-term care hospital
rule, which continues the agency's efforts to ensure Medicare
is paying appropriately for medically complex patients. The
rule advanced recommendations to short stay outlier policy and
modified the 25 percent rule to include freestanding
facilities.
In addition, it identified next steps CMS will pursue in
working with the industry to develop patient and facility
criteria for LTCHs. This effort stems from a MedPAC
recommendation and subsequent research CMS conducted with it's
contractor RTI.
Mr. Chairman, CMS is firmly committed to implementing
rational and responsible policies to ensure that Medicare
remains fiscally sustainable. The actions we take now would
directly impact our ability to preserve the promise of
healthcare coverage for America's seniors, people with
disabilities and low-income, vulnerable populations.
We look forward to working with Congress in the coming year
to reform Medicare's fee-for-service payment systems, in
particular those that impact the providers we are discussing
today.
I would be happy to answer any questions the Committee
might have.
[The prepared statement of Mr. Kuhn follows:]
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Chairman STARK. Thank you.
Mark?
STATEMENT OF MARK MILLER, EXECUTIVE DIRECTOR, MEDICARE PAYMENT
AND ADVISORY COMMISSION
Mr. MILLER. Chairman Stark, Ranking Member Camp,
distinguished Subcommittee Members, as you know, MedPAC is a
congressional support agency created to advise Congress on
Medicare policy. As you know, we have 17 commissioners from
diverse backgrounds that review the work produced by the staff
and shape the advice that we forward to the Congress.
As we consider our policy advice to Congress we keep a
couple of principles in mind, assuring that beneficiaries have
access to quality care, assuring that taxpayer dollars are
spent wisely and then designing payment systems for providers
that assure this access but also assure that care is provided
efficiently. In this instance efficiently means not just lower
spending if that's appropriate but also higher quality at the
same level of spending.
There are other considerations that I know are on the mind
of commissioners. First there is a long run sustainability
problem for Medicare. Medicare is growing faster than the
budget, the economy and beneficiary incomes. But these spending
increases have not been consistently accompanied by
improvements either in coordination or the quality of care.
We believe attention is needed to improve payment and
delivery system incentives as part of the solution to
correcting Medicare's long run sustainability issues.
Second, Medicare policies must evolve to be more sensitive
to the performance of providers. That is, we should pay more to
providers who use resources wisely and provide high quality
care, we should pay less to those who do not.
Third, that as a payer Medicare must maintain physical
pressure on providers in order to assure that providers are
constantly engaged in spending carefully and improving the
quality of care that they provide.
The testimony I submitted discusses policies related to
fee-for-service hospitals and to post-acute care. I will just
note a few ideas and then take other questions for more
details. MedPAC has previously made recommendations to
establish a budget neutral pay-for-performance system for
hospitals and home health agencies. We have also called for
refinements to the hospital underlying payment system for
hospitals, skilled nursing facilities and home health agencies.
Regarding payment policy, as mandated by law each year we
are asked to make recommendations on payment updates to
Congress. We consider several factors, supply of providers,
access to service, how much Medicare pays relative to
providers' costs.
With respect to hospitals the commission finds that most
measures of financial performance are positive. For example,
access is good, service volume is increasing and spending on
capital is at an all time high. However there is some bad news.
Medicare margins, the amount Medicare pays above cost, are
negative and falling.
Part of the reason that these margins are low is because
hospitals have had high rates of cost growth. We think that
part of the reason they have had high rates of cost growth is
that private payers have not put significant fiscal pressure on
hospitals to contain their costs. We find, for example, that
hospitals that have consistently poor Medicare performance are
also hospitals that are paid well above their costs by private
payers and hence have higher costs per case and higher growth
in cost per case.
So, taking this evidence into account the commission tried
to strike a balance between these various indicators and the
need to maintain fiscal pressure. We have recommended a full
market basket increase for hospitals but implemented
concurrently with a budget neutral pay-for-performance system
for hospitals. The pay-for-performance policy would
redistribute dollars among hospitals so that the net payment to
high quality hospitals would be greater than a market basket
alone and the net payment to low quality hospitals would be
less than the increase for a market basket alone. In other
words, we do not believe that all hospitals are entitled to a
net increase in payments equal to the full market basket.
In a previous report on specialty hospitals, the commission
made a series of recommendations to improve the underlying
hospital payment system by refining the payments to remove
distortions that make some services systematically more
profitable than others and to better account for differences in
patient severity.
Regarding post-acute care services, home health SNF, long-
term care hospitals and inpatient rehab, generally the picture
is positive. There's an adequate supply of providers.
Beneficiary access is good. Volume of services is generally
increasing and through 2005 Medicare payment exceeded cost by a
wide margin.
However, looking forward to 2007, some circumstances have
changed. For inpatient rehab facilities and long-term care
hospitals, changes in the regulatory environment will bring
payments for these facilities down. But in evaluating these
impacts the commission chose to recommend a small, one percent
update for inpatient rehab facilities and a zero percent update
for long-term care hospitals.
Regarding long-term care hospitals, a few years ago MedPAC
made recommendations to implement patient and facility criteria
that would better target services to Medicare beneficiaries.
Finally, projecting forward for home health and skilled nursing
facilities, we continue to see that Medicare payments far
exceed costs and have recommended zero updates in these areas.
I look forward to your questions.
[The prepared statement of Mr. Miller follows:]
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Chairman STARK. Thank you. Thank you both.
Mr. Kuhn, CMS has proposed to extend the 25 percent rule
for long-term care hospitals to ``free standing'' long-term
care facilities. Have you seen evidence that acute care
hospitals and free standing long-term care hospitals are
developing transfer relationships that are financially
beneficial to both entities?
Mr. KUHN. The issue of patient swapping has been a very big
concern at the agency for the last couple of years as we've
looked at this issue, and we do see a strong relationship
between the primary referring hospital and ultimately the long-
term care hospital and we see this in a couple of areas. One is
in terms of the number of actual patients coming from the acute
care hospital, the referring hospital, to the LTCH. But where
we also see it is in outlier payments.
We see almost a 50 percent drop off in outlier payments for
those facilities that have an LTCH or a relationship with an
LTCH versus others. So I think it really raises the question
with us as the agency--are we transferring patients while
they're still in active treatment in an acute care hospital,
and are we seeing shifting between hospitals in order to
generate a second payment.
So we thought, based on the information we had, that moving
the 25 percent threshold to freestanding facilities was
appropriate. Now it is different than what we proposed. It's a
3 year phase in instead of all in the first year but we thought
that was appropriate policy decision.
Chairman STARK. Long-term care patient and facility
criteria may not diminish the need for the 25 percent rule, but
will the--why don't you think it will not diminish the need for
the 25 percent rule?
Mr. KUHN. Well, I don't want to prejudge the outcome in
terms of what kinds of characteristics we can come up with,
both facility as well as patient. One of the reasons we did,
based on the comments we received, to do a 3 year phase in was
to try to give us more time to look at the work that our
contractor RTIs developed so we can try to synch those up at
the end of the day.
So, we want to move forward with the patient
characteristics, the facility characteristics research,
hopefully move to an assessment instrument, see if we can move
forward in that direction. I think, at the end of the day is--
then we can look, is the 25 percent threshold still appropriate
or does the patient characteristics take over and would help us
better manage utilization?
Chairman STARK. You have--you're proceeding to implement a
75 percent inpatient rehab facility rule. Do you have any
evidence on how that will affect patient access to care?
Mr. KUHN. The information we've looked at so far doesn't
seem to be impactful in terms of patient access. Yes, the
number of admissions in rehab facilities are down, and of
course they would be. But really this is about value. This is
not about volume as we move forward. The intent is really to
remove the risk of Medicare overpaying for treatment for
patients in these facilities. So yes, the numbers are down. But
what we're seeing correspondingly is that skilled nursing
facilities, home health agencies are picking up these patients
in the right settings.
So, the biggest area where we had questions, that is, lower
extremities or joint replacements are moving out of IRFs into
other areas where they can be treated just as appropriately by
the lower costs. But other patients--for maybe stroke, brain
injury, nervous system problems are moving more aggressively
into the rehab systems. So, this is a policy seemingly to have
its impact in an appropriate way.
Chairman STARK. Thank you.
Mark, I know that you please all of the hospitals when you
suggested a full update and got everybody all excited, but I
gather in your testimony you're suggesting that--I'm not sure
you gave us the list of who should get an update and who
shouldn't. I'm waiting for you to hand me that list of the
6,000 hospitals. You had a rate of A, B, C, D, so none of the
ones that get a cut are in California, I presume.
Mr. MILLER. Obviously.
Chairman STARK. Or New York or Michigan or Texas. But at
any rate, is it fair to say that you recommend an update for
hospitals but that there should be some differentiation to the
extent we can determine that among more efficient hospitals and
less efficient hospitals?
Mr. MILLER. I think that's a fair characterization of the
commission's position. There's a lot of discussion around this,
and you saw a lot of positive indicators, but the Medicare
margins and the trends in those were disturbing commissioners.
But at the same time there was a real concern that just sort of
a blanket, across the board update for all hospitals was not a
good use of either policy design or the resources that Medicare
has. So, I think your characterization is correct.
Chairman STARK. You also recommended a 1 percent update for
inpatient rehab facilities for '08. You base that on a
conservative assumption about how they'd respond to the 75
percent rule. If they are nimble and able to restructure costs,
how high might their margins go?
Mr. MILLER. I just want to be clear that we're in the world
of estimation here. But what we estimated on different sets of
assumptions was as high as five-and-a-half percent.
Chairman STARK. Under that scenario would an update that is
lower than your recommendation be justified?
Mr. MILLER. I can only speculate about what the commission
would have concluded, and my sense is, given where things were
in the inpatient rehab facility, they would have gone with a
zero update in that circumstance. But that's my guess.
Chairman STARK. I think we'll hear from witnesses later
that the inpatient rehab facilities may have to turn away
patients because of the 75 percent rule and that we're seeing a
decline in admissions. Should the IRFs be turning away
patients? Does the drop in admissions mean there's an access
problem?
Mr. MILLER. We looked at this just like Herb did as well.
We decidedly see a reduction in admissions, just as Herb said.
We decidedly see increases in areas like skilled nursing
facilities and home health. I would characterize the
commission's view of the 75 percent rule as a fairly blunt
instrument, and our concerns about the 75 percent rule were to
be that it needs to be dynamic, revisited, in order to be sure
that it evolves with the change in care and that the process
that they use to define diagnoses that are allowed should be
transparent to the industry, to the patients, to clinicians.
So, we don't see--we did not conclude that there was an
access problem or an issue that would warrant change at this
point. We made the recommendation that we made for the 1
percent sort of evaluating the entire array of evidence.
Chairman STARK. Thank you.
Mr. Camp, would you like to go next?
Mr. CAMP. Thank you, Mr. Chairman. I think I just would
like to go back to the long-term acute care hospital issue for
just a second. You know, as in many areas across the country
there may be only one or two acute care hospitals. There's been
a lot of mergers in the medical sector. How do you propose, how
does CMS propose to address an area with fewer local hospitals
and will hospitals, LTCHs, located in those areas be exempt
from the 25 percent rule?
Mr. KUHN. We did a couple things in the rule to try to help
deal with that issue. Obviously the 25 percent rule is there
for hospitals, but in two instances, if they're located in the
rural area the threshold is 50 percent or if they happen to be
a dominant facility in the area it can go up to 50 percent as
well. The second part is that if a patient from an acute care
facility has already triggered an outlier payment that doesn't
count against the 50 percent threshold, or if they're receiving
patients from someone's home or a skilled nursing facility or
something like that. So, we think those changes provide the
flexibility--enough flexibility in those areas.
Mr. CAMP. You often don't have hospitals. You have hospital
systems. Are hospitals within the hospital system treated as
distinct hospitals or because they have the same parent are
they all part of the same hospital?
Mr. KUHN. My recollection, it's treated as a system for
that process, but I could double check. I believe if I'm
incorrect we could get back to you in writing on that one.
Mr. CAMP. I also want to just also touch on the CMS 2.4
percent reduction for hospitals. I guess what MedPAC giveth CMS
taketh away. I realize there are significant changes being made
to the DRG system, taking into account patient severity. How
did CMS come up with this 2.4 percent reduction in payment for
coding and can you explain how CMS proposes to implement that?
Mr. KUHN. Sure. First of all, it really is not a reduction.
It's a budget-neutral adjustment. The issue, if you really look
at this year's rule, hospital payments are going up by an
excess of $3 billion. It's a 3.3 percent market basket update.
What we've done in this proposed rule is the third year in
terms of adjustments on severity, and we're increasing the
number of DRGs from approximately 538 to 745. When you do that,
hospitals--and as I said in my opening statement, will code
more accurately. As a result of that, you want to keep it
budget neutral throughout the system. You don't want to spend
more money by virtue of these additional DRGs, you want to
spend the same amount of money, so you need to make a budget
neutral adjustment.
This is supported by over 20 years of research and
experience in this area. When the PPS system for hospitals was
first implemented in 1983 there was a behavioral adjustment put
in place. In a retrospective manner it looked like the agency
undershot and hospitals coded more aggressively than we
originally thought.
If you look at long-term care hospitals, psychiatric
facilities, rehab facilities, all those were also put in
prospective adjustments for behavioral changes. At least for
long-term care hospitals and rehab facilities, the evidence
shows that we undershot and we've had to go back and make
retrospective changes.
So, this is standard behavior in prospective payment
systems and what we do. Where we got the numbers that we put in
place were based on experience that we saw with the state of
Maryland. Maryland operates under a waiver and they put in
place the APRs, the all-payer refined DRGs, a few years ago,
and we saw very aggressive coding changes as a result and in
direct reaction to these new DRGs that were put in place.
So based on the best information we had for Maryland our
actuaries made these recommendations. But again, it's a
proposed rule and we hope to get comments from the stakeholder
community on it.
Mr. CAMP. I'm sure you'll be receiving many of those. Just
one last question, Mr. Kuhn. Regarding home health, obviously
the Deficit Reduction Act tied home health payments to the
reporting of quality measures and if you reported quality you
received a higher payment, but CMS also required that home
health agencies submit OASIS data in order to receive that
higher update.
Obviously this is something they were required to do
anyway. I am encouraged that CMS is proposing to capture two
additional measures relating to wound care next year, but does
CMS really feel that it's getting enough useful information out
of the OASIS data? Since payment is tied to the reporting of
quality data, does it make sense to require agencies to submit
something that they aren't required to submit as a condition of
participation in the Medicare program?
Mr. KUHN. It's a very good question, and you're right. We
have 10 data elements we're using this year and we plan to go
to 12 for next year. We do need more major development in the
home health area. The time being from when the legislation was
passed to the implementation of this was very short and so we
had to kind of go with what we had, but there is a duplication
between what's reported on OASIS and what's reported for the
quality indicators. But major development is underway and we
hope in future years we can get a more expanded list and
achieve the objective you all wanted in the legislation that's
better quality information that both patients and providers can
use and that ultimately may be tied to payment someday in the
future.
Mr. CAMP. All right. Thank you. Thank you both for your
testimony. I see my time has expired. Thank you, Mr. Chairman.
Chairman STARK. Mr. Doggett, would you like to inquire?
Mr. DOGGETT. Thank you, Mr. Chairman, and thank you
gentlemen for your testimony. Mr. Kuhn if I could first address
your attention to the monetary cap on therapy services under
Part B in skilled nursing homes. As you know, we have the
exceptions process. It's set to expire at the end of the year.
What will happen to people who have life threatening conditions
if they bump up against that cap and we don't extend the
exceptions process?
Mr. KUHN. If the exceptions process is not extended for
this year it could create some real issues in terms of people
as you indicated, bumped up against the cap. So I think this is
something that's real ripe for us as the agency to engage with
all of you to think about what should be the future policy.
Should it be an extension of the cap or is there another way
that we can structure this payment system to help in that
effort?
Last year we took possession of three reports we got from
contractors in terms of therapy adjustments we could make,
adjustments in the payment system. We posted all those to our
website and we put it out for everybody to see. Then beginning
this year we started calling in the stakeholder community to
talk to them about those reports and what we could do together
with them to come up with some ideas in order to engage you and
others about the right way to go.
So, I guess the question is, is there enough time yet this
year to still develop some proposals that we could do something
different than the current exception process or do we need to
extent the exception process, or the third option is to let the
caps go into place as they were first put in place as part of
the BBA. All those are options and we'd like to talk with you
and others in Congress more about that.
Mr. DOGGETT. Well, if we let the caps go into place there
will be some pretty severe impacts on individuals with
disabling conditions, especially in rural areas, won't there?
Mr. KUHN. I have no doubt that we would see some
information. One of the things that maybe we--could be helpful
to you and others is to understand kind of the time frame at
which people start to hit the caps because people with real
chronic issues might start hitting those caps by, say, the end
of February of next year. Some it might be, you know, in the
summer. We don't yet know.
So, I think some better data mining on our part could help
you all in terms of that decision-making process.
Chairman STARK. Since we're almost to the midpoint of this
year, do you have a proposal to advance at this point as an
alternative to the exceptions approach?
Mr. KUHN. Nothing specific yet other than what we have in
those contract reports and our discussions with the stakeholder
community. But again, I think this is something that we all
could work together on and talk further about.
Mr. DOGGETT. Of course it unfortunately is true, is it not,
that the Administration did not put in any money in its budget
for correcting the therapy caps under any proposal?
Mr. KUHN. There was no recommendation in this year's
President's Budget, that's correct.
Mr. DOGGETT. As far as this year's President's Budget is
concerned as well, do you agree with the chief actuary of
Medicare who has estimated that overpayments, as the Chairman
said in his opening statement to Medicare Advantage shortened
the solvency of the Part A trust fund by 2 years?
Mr. KUHN. I guess the way I would characterize it, not as
an overpayment but the opportunity to pay for additional
benefits for those in Medicare Advantage. I would not dispute
the information provided by Rick Foster that if you change the
payment rates or rate reductions in Medicare Advantage it could
extend the trust fund for an additional 2 years. However, the
provisions put in the President's Budget for changes in
Medicare policy would extend the trust fund for an additional 4
years.
Mr. DOGGETT. Well, some of those are fairly--have fairly
onerous consequences of doing that. You indicate that the
President put in no money to help my constituent who has a head
injury or lung disease and bumps up against the exceptions
under Part B in a skilled nursing home, and yet, as I
understand his budget he rules off limits taking even a dime
from Medicare Advantage.
Mr. KUHN. That's correct. There are no recommendations for
changes in Medicare Advantage payments in the President's
Budget.
Mr. DOGGETT. Is that still the Administration's position
that we are to look at Medicare and the many conflicting
concerns and interests that we have but we're to do all of it
without taking a dime from the Medicare Advantage program?
Mr. KUHN. Again, there's no recommendations in the
President's on Medicare Advantage. But having said that we are
continuing to look at the Medicare Advantage program and
changes are in the offing.
This year because we are making changes in fee-for-service,
that also impacts Medicare Advantage. So this year's proposal
dealt with issues such as the frailty adjustment, to make sure
that those adjustments were made accordingly, fee for service
normalization and ESRD changes. So, there are changes that are
ongoing with the payment system on Medicare Advantage as part
of the regular regulatory process.
Mr. DOGGETT. Finally with regard to long-term care
facilities, you've had a couple of questions on this. As Dr.
Miller pointed out, MedPAC made recommendations back in 2004,
almost 3 years ago, to have you set up a facility and patient
criteria system. When will we get it?
Mr. KUHN. That's a very good point. Basically MedPAC did
make that recommendation and acting upon that we engaged the
contractor RTI to give us a report on this. That report was
made available late last year. Already we have convened one
technical expert panel with the industry to help us kind of
look at the report, come up with a set of recommendations.
Very soon we ought to be convening a second technical
expert panel to help us move forward on that, and then the
really hard work begins in terms of the development of
assessment instruments. I would hope within the next couple
years we could be at a better place here but probably not
before then.
Mr. DOGGETT. You think a couple of years before a new
regulation is in place?
Mr. KUHN. A couple of years before we would have some good,
solid recommendations on a new kind of classification system
for LTCH.
Mr. DOGGETT. A couple of years before you make the
recommendation, not before it becomes effective?
Mr. KUHN. That's right, a couple years before we'd have a
final recommendation.
Mr. DOGGETT. As far as where you are now, you said you
brought in some experts. Has MedPAC, Dr. Miller had a chance to
see and comment on the alternatives that you're looking at?
Mr. KUHN. They will be engaged in that process as we go
forward, yes, sir.
Mr. DOGGETT. But they have not thus far? Are you members of
the----
Mr. KUHN [continuing]. I can't remember if they were on the
technical expert panel or not.
Mr. MILLER. I believe that we were briefed on the
directions that they were going in, yes.
Mr. DOGGETT. We would certainly need your further input on
that. It's been a very long process.
Mr. MILLER. The only thing I would point out is that
there's actually two different pieces of legislation floating
around from the two different associations in long-term care
hospitals, which take pieces of our criteria and build them
into legislation. I would also suggest that we start looking at
that and think of one piece of legislation that encompasses all
of the criteria and use that as a place to start our
discussions.
Mr. DOGGETT. I'll just follow up on that. Is there one of
those approaches that you find preferable to the other?
Mr. MILLER. No, what the industry did is they sort of
selected pieces of our criteria and kind of pulled them apart
and put them in two different bills. We think there needs to be
both patient and facility criteria, and we have our list, and
we think that the legislation needs to include all of it.
Mr. DOGGETT. Do we need to move forward in passing that
legislation rather than waiting for another couple of years for
them to come out with a recommendation?
Mr. MILLER. I mean I think ultimately--and actually I'm not
sure of this. I think ultimately there may need to be some
legislation in order for the industry to--or for the agency to
go forward, although I'm not sure of that.
Mr. DOGGETT. What's your view on that, Mr. Kuhn?
Mr. KUHN. We haven't taken an official position on any of
the legislation that's out there. It does, for example, exclude
psychiatric and rehabilitation cases from going into LTCHs, but
on the rest of the area, really getting the good, scientific
basis in terms of how you make an assessment of when someone is
ready to be transferred from an acute care hospital to an LTCH.
I just don't know if we're there yet on the body of evidence.
So, legislation could get us part way there. I just don't
know if it would get us all the way there yet.
Chairman STARK. Mr. Johnson, would you like to inquire?
Mr. JOHNSON. Thank you, Mr. Chairman. You know, I liked the
question Mr. Doggett asked about how you're developing a
patient assessment tool. I don't think you really answered the
question, when's it going to happen. You're telling us maybe
one, maybe 2 years.
Mr. KUHN. It's probably still a lot of research and a lot
of development needs to go on, Mr. Johnson, and we're probably
2 years out from the final effort in this area.
Mr. JOHNSON. Well, that brings me to another question. It
seems silly to me that we're using outdated data. I've been
after you guys about that before. But in home health care I
think you went from '97 to '04, but '04 is still 3 years old.
You know, we send patients to doctors, and I think doctors are
more reliable on making decisions about where a patient ought
to go or how long he ought to stay. Their information is
current. I mean it's of the minute. So, why can't we get that
kind of information and use it in our assessments?
Mr. KUHN. I agree having the best information available for
payment systems is absolutely key. Part of it is that the
hospitals and other providers that provide us their information
provide a report at the end of the year. It needs to be
audited. Then if there's any disputes in it they need to go
through that process. So, the whole back end process of
auditing, making sure it's accurate takes time to play that
out. If there's ways that we could accelerate that and use
better, more current information we would certainly like to
find a way, but at least at the time being it looks like it's
about as fast as we can move on the data for payment systems.
Having said that, in terms of clinical information, now
that we're moving for paper reporting and some of those issues
the data is turning around a lot quicker. So we're doing better
on that and we seem to be able to move that one because you
don't have to go through the extensive financial audits. So, on
that side of the ledger I think we're going to have a better
picture in the future.
Mr. JOHNSON. Would it help if hospitals got everything on
computer and talked to each other?
Mr. KUHN. Most of it is electronic now, and our cost
reports are standardized. They seem to be able to get the
information in accurately and appropriately, but additional
standardization in a number of areas probably would help as
well.
Mr. JOHNSON. You indicate, I believe, you announce that
free standing, long-term health care would be subject to the 25
percent rule. Yet, in areas across our country communities have
only one or two acute care hospitals. How is the CMS proposing
to address areas with three or fewer hospitals, and will long-
term care in these areas be exempted?
Mr. KUHN. What we're trying to do in that area is a couple
of different thresholds. One is to make sure for the rural
long-term care hospitals, they're set at a 50 percent
threshold, so they're not held to the 25 percent threshold.
Then also those areas like you described where there's kind of
a dominant player in the area, and say there's two
institutions, one could be at the 50 percent threshold, the
other could be, say, at a 40 percent. So, we think between the
combination of both the dominant and the rural kind of set
asides, I think it works in those areas and I think it makes a
better policy.
Obviously this is something we want to monitor as we do
implementation. We're going to do a 3-year phase in. The idea
of a 3-year phase in was to deal with the first question you
asked to make sure that you kind of synch this up at the end of
the day with a better classification system so that it will be
one for active monitoring for all of us.
Mr. JOHNSON. Mr. Chairman, I don't have any further
questions. Thank you.
Chairman STARK. Thank you. Mr. Thompson.
Mr. THOMPSON. Thank you, Mr. Chairman. Mr. Kuhn, in regard
to the proposed rule, the IPPS rule, as I understand it, the
adoption of the cost-based weights might result in an increase
to rural facilities but that the shift to the severity-based
DRG will certainly result in a decrease. I believe your staff
has conceded that this proposal will bring about a net decrease
in reimbursements to rural hospitals. I'm interested to know if
you have any way to quantify the severity of the cut that the
rural hospitals will experience. Has there been given any
thought to providing some sort of carve out for the rurals or
hold harmless for the rurals?
Mr. KUHN. What you're describing, you described it
accurately. What happened was is when we did the cost-based
weights last year that really did send payments away from
surgical procedures more to medical procedures. Real hospitals,
by kind of a generalization tent to treat more medical cases
than surgical cases, so they were the beneficiary of the
changes made last year as part of the process.
But last year when we laid out the proposal and as we
talked about the proposal this year, when you go to severity
adjustments it tends to have the reverse effect. Urban
hospitals tend to see sicker patients and probably ought to be
awarded accordingly as a result of the----
Mr. THOMPSON. I'm pretty familiar with the reasoning. I'm
just wondering, have you been able to quantify what the hit is
going to be to rural?
Mr. KUHN [continuing]. I think the ultimate impact for
rural hospitals over is a minus 1.5, maybe a minus 2 percent
overall, a general characterization of rural hospitals.
Mr. THOMPSON. So, have you thought about doing a hold
harmless or provide some sort of--I don't think anybody in this
room thinks that rural hospitals are fat and sassy. They're
experiencing the same problems and maybe greater problems in
other areas. It seems to me that this proposal would make
things even more difficult for people who live in rural areas
to get the type of medical care they need.
Mr. KUHN. Now I think that's a fair point. That's not a
specific proposal we made and we put forward. Having said that,
what we could do is receive comments on it for people to give
us comments in terms of ways that we could look at that. So,
we're certainly open to hear any comments people might make.
Mr. THOMPSON. Is it appropriate for me to ask you to give
us some information on that or give us some thoughts?
Mr. KUHN. We would be happy to come and talk to you and
your staff at a later time about that if that would be helpful,
happy to.
Mr. THOMPSON. Thank you. My next question is regarding the
recovery audit contractors that are used. I understand that
these contractors are able to retain a pretty hefty percentage
of recovered payments. Some of my hospitals tell me that
there's one particular state contractor, PRG Schultz working in
California, that they're denying reimbursements for almost all
joint replacements, and these are ones that are done in IRFs.
My question is if they go through the appeal process and
they're found to--and that reduction is overridden, will that
money be reclaimed from the contractors?
Mr. KUHN. Yes. We have these RACs, the recovery audit
contractors, that are operating right now in three states,
California, New York and Florida. You're right, the one in
California has been active in looking at payment options in
terms of rehab facilities. Right now they are looking at single
joint replacement issues, things like that.
We've talked extensively to California Hospital
Association. I think you and others have directed them to us to
talk about this issue. Right now, from understanding it's that
if the hospitals have appealed the determinations by the RACs
none of them have been upheld in appeal--or they've all been
upheld, none have been overturned. However if they are
overturned of course, the dollars do flow back to the hospital.
Mr. THOMPSON. It would come back from the contractor?
Mr. KUHN. That's my understanding, yes. If I'm incorrect,
we can correct that for you for the record, but that's my
understanding.
Mr. THOMPSON. Thank you. One final question. That's the
cuts to capital payments, and some hospitals--and I hate to
continue to be parochial about this, but California hospitals
have put a lot of money in regard to safety issues,
specifically seismic safety. My understanding is that this
particular proposal would come down pretty hard on the efforts
in California to protect patients from troubles that would come
about if there were seismic incidents that would affect these
hospitals.
Mr. KUHN. I am aware of the seismic issues California
hospitals have, and I think that would be a good thing for us
to get a comment from the hospitals of California and others as
we think about it.
The other thing to point out about the capital
recommendations we make in the proposed rule, and going back to
your concerns about rural issues is that for the
recommendations the only changes we made or the only
recommendations we're making impact urban hospitals. For rural
hospitals we say leave them alone on capital, give them the
full update in that regard. So, it really--the differentiation
is between urban and rural.
Mr. THOMPSON. Well, urban and rural differences
notwithstanding, California hospitals, the money that they need
to retrofit their hospitals is more than the equity in all the
hospitals in California combined. So, it's a huge issue, and I
know it's a state mandate to require the seismic retrofit, but
I don't think anybody at the Federal level is interested in
putting patients in an unsafe situation.
Thank you.
Chairman STARK. Mr. Ramstad, I'm--we're crowding toward the
end of the vote here. I would hope that we could ask you both
to stay as we've got five votes. It will take us the better
part of a half--45 minutes, but if it's possible we'd sure
appreciate either or both of you staying.
Mr. Ramstad.
Mr. RAMSTAD. Thank you, Mr. Chairman. I'll be as succinct
as possible. I thank you, Dr. Miller and Mr. Kuhn, for being
here, and I appreciate certainly the fiscal challenges that
Medicare is facing. I agree that changes obviously need to be
made. One of the concerns I hear time and time again is that we
can't cut Medicare because Medicare payments compensate for low
Medicaid reimbursements. Isn't it true that cross subsidization
is a big deal, a major issue, especially for providers like
long-term care facilities that typically see a large number of
Medicaid patients, caseloads are dominated by Medicaid
patients? I want to know, number one, how major is the cross
subsidization issue and number two whether CMS is working with
the states and providers to develop a system where Medicare
pays for Medicare services and Medicaid pays for Medicaid
services. That seems to make only good sense.
Mr. KUHN. That's a fair question. I think the most recent
data I've seen on this and probably Mark Miller has probably
better information than me right now, is that at least for a
typical long-term care hospital, about 10 percent of their
patient load is Medicare Part A stays, but it represents about
20 percent of their revenues. So I think it makes the point you
were talking about right there, there is a lot of cross
subsidization going on there.
Medicare itself works a lot with states in terms of their
state plans to make sure that they're appropriate and adequate
in terms of their payment systems. But again, states have a
great deal of leeway in terms of their ability and their
determinations in terms of setting rates under the Medicaid
program. But that happens not only with long-term care
providers but other providers in the Medicaid program as well.
Mr. MILLER. We've addressed this issue a couple of times.
This comes up all the time, as you might imagine, and our
concerns here are that first of all, using a small block of
dollars to subsidize the larger block, the targeting is wrong.
Facilities that have more Medicare would get more payments.
Then finally you'd basically be inviting the states to step
back in their responsibilities and so we think that this is
really a problem.
Mr. RAMSTAD. Thank you.
Chairman STARK. Thank you [continuing]. We'll recess
subject to the call of the Chair.
[Recess.]
Chairman STARK. I thank the witnesses and our guests for
their patience. Mr. Hulshof will inquire.
Mr. HULSHOF. Thank you, Mr. Chairman. I ask permission.
I've got an extended written statement. May I include it as
part of the record?
Chairman STARK. Without objection.
Mr. HULSHOF. Thank you, sir.
[The information follows:]
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Mr. HULSHOF. I, too, want to thank both you gentleman for
sticking around. Mr. Chairman, this past Saturday, I was the
commencement speaker at the University of Missouri School of
Health Professions. This was the new group going into physical
and occupational therapy, speech pathologists, and the theme of
my remarks was what were you thinking? It actually was quite
inspiring, Mr. Kuhn. I see you smiling at me. But it was--I got
their attention when we went into it.
What I want to do is, is I want to talk a little bit about
and follow up on what each of you has said regarding the 85
percent rule. You know, one of my biggest concerns, and Dr.
Miller, you said, and I absolutely agree, we need a dynamic way
of looking at reimbursements. I think the goal that we share
that you have as well is an integrated post-acute care system.
But I've got to tell you that one of my concerns about the
75 percent rule is the seemingly arbitrary effect it has on
patients, specifically those not within the 13 diagnostic
categories that count toward the 75 percent rule, including
cardiac, pulmonary, cancer pain, joint replacement. So then
patients that fall outside those 13 qualifying conditions are
often denied access at an inpatient facility. Access is most
restrictive for patients whose needs benefit from these newer
rehab specialties, especially pulmonary and cardiac and cancer.
I don't know if either of you have seen the Moran report
that came out earlier this month. It basically says if you look
at the drop in--as far as discharges from March 31st of 2004
compared to March 31st of 2007, so a three-year period of time,
we have seen a nearly 80,000 reduction in discharges. That's a
23.5-percent decline. Now, Mr. Kuhn, you said, and I'm not--
this is not an indictment of what you said, but you said this
is the intended impact. I mean, the whole idea of providing
this integrated care.
Yet I've got to tell you that, you know, 2 years ago, you
may recall, Mr. Kuhn, you and I, we had a similar discussion,
and you mentioned that, well, there was a high water mark
because there was a spike in admissions because we had
suspended the old 75 percent rule. But I've got to tell you,
looking back over the last couple of years, you know, this is a
fairly harsh picture. Dr. Miller called it a blunt instrument,
and I couldn't agree more.
So if we have achieved the intention--I mean, if the intent
has now been realized, why don't we stop where we are? Mr.
Tanner and I, and I know he wasn't able to return, but we have
a bill. H.R. 1459, that basically recognizes that we've
achieved those admission goals we had hoped for in drafting the
75 percent rule, and we maintain the 60 percent threshold from
here on out. You know, we're not repealing it. We're just--
we're standing pat with that. I would hope--I'm not going to
ask you to comment on the bill specifically.
But let me ask you, Mr. Kuhn, 2 years ago when we discussed
the 75 percent rule, a lot of your prepared testimony back then
focused on the need for research. You said research was an
important next step. Since then, what research has CMS done or
what has CMS looked at to more appropriately identify the types
of clinical or functional or medical characteristics that could
be used to refine the 75 percent rule if we keep it in place?
Mr. KUHN. I would agree with you, Mr. Hulshof, that indeed,
research is the way we need to go in this area. A couple of
things that we've done in this area, first, right after we came
out with the final rule back in 2004, we worked with the
National Institutes of Health to convene a panel to help us
talk about a research agenda and what would be the right way to
go.
As a result of that, we had an information notice to
investigators that was posted last year by NIH in collaboration
with us that talked really about the need for a research agenda
for rehabilitative care, and the fact that how we can increase
the base of knowledge of information that's out there, and how
CMS could work with researchers to help them design their
studies, how we could find ways through our clinical research
policy to make sure that Medicare would pay for the patients in
these studies, all the things that we could do to the maximum
extent possible.
To be quite candid, we haven't seen anything come forward
yet as a result of that. We've had some general inquiries but
no specific proposals yet on that agenda. But we want to
continue in that area.
Having said that, NIH convened another panel just a month
ago to talk further about a research agenda which we
participated in and encouraged as part of that process. Also,
we've had some good outreach with the industry themselves, with
specific rehabilitative hospitals and others who are trying to
conduct some research. So, we're probably not as far along as
we would probably like to be, but we are making progress in
that area.
Mr. HULSHOF. I appreciate it. As my final comment, Mr.
Chairman, thank you. I won't ask you a question, Mr. Kuhn, but
I'm concerned about CMS' proposal not to allow co-morbidity
cases to be calculated. It's been counted for the past 3 years.
Starting next year, it won't. If you don't mind, I'll submit a
question to you and we can chat about this further.
Mr. KUHN. We'd be happy to chat with you further about
that, and we hope to get comments during the comment period on
that specific issue. So, that would be helpful to hear more
from you about that.
Mr. HULSHOF. Thank you. Thank you, Mr. Chairman.
Mr. MILLER. Could I add one thing to this?
Mr. HULSHOF. Please.
Mr. MILLER. You know, when the rule initially came out a
few years back, and this I think just illustrates how difficult
the problem is, we got a group of clinicians together and sort
of talked about the implications in it. There was a lot of
comments that you might imagine along the lines that you were
saying. But there was also a clinician who said, actually--and
we were talking about hip and knee replacement, that type of
thing. There was also a clinician who said I don't use the
facilities at all. I have a protocol where I send my patients
through exercise, get them ready for the operation and then use
strictly outpatient therapy and home health--or home setting in
order to get them rehabbed.
I think that points to the need that Herb is pointing out,
and I think you're pointing out, that we just lack a lot of
clinical information about what is needed for one situation
versus another, and rehab is really a complicated area.
Something that the commission is going to call for in its June
report--we've talked about it public, but it will be out next
month--is to develop comparative effectiveness information to
try and address this as well as other types of issues where you
get these complications.
Chairman STARK. Thank you. Mr. Pomeroy, would you like to
inquire?
Mr. POMEROY. Mr. Chairman, the line of inquiry I have has
largely been covered earlier, but I've got a couple of things
to say about it. This involves the LTCH limitation. Mr. Kuhn, I
would just say how disappointed I am representing two LTCHs in
North Dakota. Each would have had substantial trouble with the
initial 25 percent proposal, and even 50 percent in rural areas
from one referring source.
Just the dynamics of health care in rural areas render this
very crude cost containment instrument somewhat inequitable in
its application. I mean, we have dominant medical facilities
that have relationships with these LTCH's for ventilator
weaning, for wound closure. In light of the nature of
utilization patterns, you're going to have these major
hospitals being a major referral source.
So, to have all this time go by and not really get to the
crux of the issue, which is an evaluation of the particular
patient, the severity of health conditions that they're dealing
with, the kind of care required for that patient, seems to me
that you spend an awful lot of time going nowhere on getting an
appropriate handle on this, even though the MedPAC
recommendation is now I think 3 years in the state.
I'd like you to clarify for me--you talked about it a bit
with the earlier questions, but do you intend to come down on a
patient-based criteria for the appropriateness of LTCH funding,
and if so, when?
Mr. KUHN. You're right. It is our intent to move forward on
a way to better classify not only the patients but the
facilities as well, at least some recommendations for doing
that. If you look at it right now, an LTCH, the only
classification we have is that it's an acute care hospital with
an average length of stay of 25 days or more. So what MedPAC
opined on back in 2004, what we've moved forward with a
contractor to get a report, which is out there, and we've
already convened one technical expert panel, is now to take
that information and what can we use for classification for
both patients as well as facilities.
Our best guess right now in terms of a research agenda to
continue that forward is probably a 2-year window still is the
best we can think of now. Would we like to do it sooner and
faster? You bet. But at least that's kind of our current
expectation of where we think the next steps are.
Mr. POMEROY. Do you believe Congress then should hold in
abeyance its own thoughts on this matter until this period has
run its course, or move some of the legislation that's been
pending?
Mr. KUHN. You know, that's a tough question to answer,
because I don't want to prejudge the research in any way, shape
or form, but, obviously, if Congress wants to move forward with
its own agenda, you know, that's certainly their prerogative.
I think we have some good information out there. I think
the work of our first technical expert panel, we hope to
convene a second one here very soon, hopefully will give us the
information that we need to move forward on.
So, you know, this is hard for me to say here, you know,
trust us. But I'd like us to be able to see how much further we
can get before Congress wants to legislate in this area and
hold us accountable for taking the next proper steps to move
forward on a----
Mr. POMEROY. What time does your rule--when does your rule
take effect?
Mr. KUHN [continuing]. It is effective July 1. The final
was published about May 1, and it's effective on July 1. What
we have in that rule is kind of a 3-year transition on the 25
percent rule, and a chance for us to sync up the final
classification somewhere, you know, in 2009, something like
that.
Mr. POMEROY. I'm sorry. I'm not quite sure I understood
that part.
Mr. KUHN. Yeah. What we did in the final rule, when we put
the proposal out, we said we would do--our recommendation was
to move to a 25 percent threshold immediately for free-standing
LTCHs. But after the comment period and listening to the
comments we received, we said let's do it over a 3-year
transition. So, it would be 75 percent beginning on July 1,
then move to 50 percent, and then ultimately 25 percent in the
third year.
That bought us, you know, 3 years to kind of work on this
classification system because the issue is, is the
classification a more appropriate system, or is the 25 percent
rule more appropriate? So that kind of brings them both
together so we can evaluate which one works best----
Mr. POMEROY. I could almost tell you right now. What could
be better than patient assessment? This involves reimbursing
medical care delivered per patient.
Mr. KUHN [continuing]. Right.
Mr. POMEROY. How can you do better than per patient
certification?
Mr. KUHN. I agree patient assessment--perhaps Mark has some
things to add about it, but, you know, the real crux of this
issue, because these facilities are both acute care hospitals,
one just has to have a longer length of stay, at what time do
you stop active treatment in an acute care hospital and start
treatment in an LTCH? How do you assess that? That's a tough
clinical question that people need to work on, that we all need
to work on as we go forward. But Mark might have some ideas on
that, too.
Mr. MILLER. I mean, just--when we went through and did this
analysis, and our analysis was based on data as well as going
out and talking to clinicians that worked in the long-term care
hospitals, we acknowledged at the end of our report that even
with a revised classification system for long-term care
hospitals, patient and facility, there are still seams between
the inpatient PPS system and the long-term care hospital where,
I mean, for example, you can literally take a patient out of
one part of the hospital, move him to another, and move him
into a different payment system. I know you know this.
So we said that there would still be issues that have to be
worked through to kind of make sure that these two payment
systems are calibrated to work with each other. We still would
like to see the patient and facility criteria move along. But
I'm not sure that it will come--and we think it will make the
situation better. I'm not sure it will eliminate the issue
entirely.
Mr. POMEROY. I do, Mr. Chairman, and I know my time has
expired----
Chairman STARK. Go ahead.
Mr. POMEROY [continuing]. I think that they were--I like
the changes to the rule better than I like the initial rule. I
thought the initial rule was horrible. Now I think what they're
moving forward with is merely bad.
[Laughter.]
Mr. POMEROY. It could be better. I do think that at least
Congress will have the chance to act before the--some of the
outyears kick in. Thank you, Mr. Chairman. I yield back.
Chairman STARK. Thank you both. Thank you for your patience
as we went off and voted on some very seriously important
legislation. We'll, I'm sure, be talking with both of you again
more as we proceed and try and find answers to these questions.
We now have an exciting panel who have all come here today
to volunteer to give back money to Medicare, because they all
feel they're being overpaid.
[Laughter.]
Chairman STARK. They're here to support the Medicare
Advantage program. I'm just so thrilled that the Federation of
American Hospitals has sent Mr. Chip Kahn to counsel with us.
The American Hospital Association has sent its President and
CEO, Mr. Umbdenstock. The American Health Care Association sent
its President, Bruce Yarwood. The American Association of
Medical Colleges and the Greater New York Hospital Association
has sent Mr. Stanley Brezenoff. The National Association for
Home Care and Hospice and the Michigan Home Health Association
has sent someone Mr. Camp would like to introduce.
Mr. CAMP. Well, thank you, Mr. Chairman. I appreciate the
opportunity to introduce Christine Chesny, President of the
MidMichigan Visiting Nurses Association from my hometown of
Midland, Michigan. I've known Chris for many years. We've
visited over the years on home health issues, and particular on
home health agencies in Michigan. She's been an effective
leader and advocate, and I welcome her to the Committee and
look forward to her testimony today. I know it will be
informative.
Thank you very much, Mr. Chairman. I yield back.
Chairman STARK. Thank you. Dr. Mary Beth on behalf of the
American Medical Rehabilitation Providers Association is our
cleanup batter today.
Chip, lead off.
STATEMENT OF CHARLES N. KAHN III, PRESIDENT, FEDERATION OF
AMERICAN HOSPITALS
Mr. KAHN. Thank you, Mr. Chairman and other Members of the
Subcommittee. I appreciate the opportunity to appear here today
to discuss Medicare policy on behalf of the Federation of
American Hospitals, the nation's investor-owned hospitals.
While Medicare has successfully protected America's seniors
and disabled for many decades, the program frequently
challenges the hospitals that its beneficiaries depend on for
care. I will cover today five of those challenges.
First, CMS proposes a payment rule for FY08 that cuts
Medicare payments by some $25 billion. This proposal comes as
MedPAC estimates overall Medicare--hospital Medicare margins at
negative 4.5 percent for 2007, and so recommends a full market
basket for hospitals for FY08. The CMS reg ignores the
deteriorating Medicare hospital fiscal condition, and what is
particularly frustrating is that the proposal is based on
questionable analysis.
Most of the cuts occur because CMS has decided to make the
DRG system more sensitive to patient severity. CMS has paired
the refinement with cuts in payments based on the assumption
that hospitals will reap some kind of financial windfall from
the effects of this policy change. Our analytical work has yet
to reveal a credible basis for what amounts to an overall
payment reduction of 4.8 percent over the next 2 years.
Additionally, CMS proposes to cut hospital capital
payments. The justification for these cuts are based on an
analysis by CMS that covers 1996 to 2004. What hospitals
experienced in 1996 is hardly relevant today, and in 2004, the
Medicare hospital capital margins dropped to their lowest
point, 5.1 percent, which is 34 percent below 2003, and
extending that trendline further, capital margins today could
easily be negative and are part of the negative bottom line on
Medicare which is shown by MedPAC. Hospitals need relief from
these CMS cuts.
Second, these very cuts result from payment reforms that
CMS would institute in response to problems identified with
physician-owned specialty hospitals, while the Administration
has failed to properly exercise its authority to apply the
Stark rule in this regard. Yes, the CMS proposal will cut
payments. But it will utterly fail to address the perverse
economic fundamentals of self-referral and ownership on which
the physician-owned pseudo hospitals operate. Payment changes
will never resolve the conflict of interest inherent in this
type of ownership and referral that is so disruptive in our
health care system.
CMS's action fails to eliminate the incentive for
facilities to increase utilization, to avoid Medicaid and
uninsured patients, to divert to their own facilities well-
insured and healthier private pay patients, to avoid emergency
room and on-call obligations, or even to continue to engage in
careful selection of Medicare patients. We strongly urge the
Congress this year to permanently ban self-referral to these
facilities.
Third, public reporting of quality and performance metrics
can lead both to improved care and better informed patient
consumers. There is strong evidence that the reporting of the
Hospital Quality Alliance, HQA, measures is making a
difference. We recommend both reinforcing HQA's contributions
and putting in place a national quality improvement agenda
through expanding the role of the National Quality Forum to
serve as the priority setter for the advancement of clinical
performance metrics and as metric overseer.
Congressional support is essential here whether you proceed
with pay-for-performance or continue the current course of
measurement and transparency.
Fourth, while there is always a need for examination of the
role of providers in the post-acute continuum, CMS has adopted
arbitrary regulations in this area that we believe fail the
patients. In one case, the 75 percent rule rehab hospitals, not
yet fully implement, it has already exceeded estimate caseload
declines and provided fiscal savings beyond that targeted by
CMS. So, the Congress should act to sustain enforcement at 60
percent.
As regards to long-term care acute hospitals, CMS has
advanced punishing policies that will likely result in payments
below cost and that establish unprecedented quotas on referral
sources. Instead, CMS should develop facility and patient
certification criteria, as MedPAC recommends, to ensure that
only the most medically complex patients are treated in these
hospitals.
Finally, Mr. Chairman, we support the Subcommittee's
interest in reauthorizing the Child Health Insurance program
and fixing Medicare physician payment. However, with your PAY-
GO responsibilities, funding must be found for these reforms.
As Rick Foster, the CMS actuary, has pointed out, Medicare
Advantage policies currently weaken the hospital trust fund by
an initial 2 years. We believe these policies warrant your
reexamination.
In this regard, we hope that you find funding that is fair
to the Medicare beneficiaries and to those providing the
medical care that beneficiaries depend on and are entitled to
receive.
Thank you, Mr. Chairman, and the Subcommittee. I'll be
happy to answer questions.
[The prepared statement of Mr. Kahn follows:]
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Chairman STARK. Thank you, Chip.
Mr. Umbdenstock, would you like to inform and enlighten us
in any way you'd care?
STATEMENT OF RICHARD J. UMBDENSTOCK,
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
AMERICAN HOSPITAL ASSOCIATION
Mr. UMBDENSTOCK. Thank you, Mr. Chairman. It's my pleasure
to be here today on behalf of our 5,000, nearly 5,000 member
hospitals.
Mr. Chairman and Members of the Committee, the men and
women of hospitals do great things in the face of very tough
challenges. Demand is soaring, and the resources needed must
keep up. My task today is to briefly explain how Congress can
help hospitals face those challenges.
First, we appreciate that Congress has rejected the more
than $100 billion in cuts to Medicare and Medicaid that the
Administration had proposed. Neither chamber's budget
resolution contains cuts to these programs, and 223 House
Members and 43 senators signed letters specifically opposing
such cuts. We urge Congress to continue to hold the line on
cuts.
Mr. Chairman, we support your efforts to do away with the
45 percent trigger, an arbitrary and misguided approach to
dealing with the challenges facing Medicare.
We urge you to follow the recommendations of MedPAC to
grant a full update for inpatient and outpatient services. This
is critical to ensuring that Medicare reimbursement keeps pace
with inflation and to reversing the dramatic decline in
hospitals' Medicare margins. MedPAC projects Medicare margins
to fall from negative 3.3 percent in 2005 to negative 5.4
percent in 2007, a ten-year low. With 65 percent of hospitals
being paid less than the cost of services provided to Medicare
patients, a full update is not just warranted, but necessary.
However, what is unwarranted and unnecessary is the CMS
proposal to cut $25 billion in payments for the services that
beneficiaries need. First, they cut $24 billion by asserting
that hospitals might change coding practices as a result of the
new severity-adjusted DRG system. The new DRGs are simply a
refinement of a classification system that hospitals have been
using for 23 years. As a result, there is unlikely to be any
change in coding practices.
Second, CMS proposes cutting capital payments by nearly $1
billion. Urban hospitals in particular would be deeply
affected. CMS went well beyond its charge by recommending these
two significant changes, and their action clearly exceeds
Congressional intent. Two Members of the Committee,
Representatives John Lewis and Jerry Weller, are circulating a
letter among their colleagues calling on CMS to eliminate these
provisions. We appreciate their efforts, and we urge Congress
to do whatever is needed to block these provisions.
Regarding inpatient rehabilitation facilities, the 75
percent rule is making it difficult for patients to get the
care they need. A study recently found that nearly 88,000
patients were unable to receive care in rehabilitation
hospitals during the first 2 years of the 75 percent rule
phase-in, an assessment that far exceeds CMS' original estimate
of 7,000 patients. We therefore oppose moving to the 65 percent
threshold in July.
We are equally concerned that many Medicare fiscal
intermediaries have further restricted the number of patients
who can be treated by these hospitals by issuing local coverage
determinations based on unreasonable definitions of medical
necessity. The AHA supports ensuring that all fiscal
intermediaries use the national guidelines currently in place
for medical necessity. Passage of H.R. 1459 would accomplish
this goal.
Regarding limited service hospitals, we strongly urge
Congress to enact a permanent ban on physician self-referrals
to limited service hospitals, with limited exceptions for
existing facilities that meet strict investment and disclosure
rules. When decisions are made with the doctor-owner's bottom
line in mind, it's not in the patient's best interest. So,
self-referral should be banned.
Rural hospitals provide essential health care services that
9 million Medicare beneficiaries need. Yet Medicare margins are
the lowest for rural hospitals. The AHA supports H.R. 1177,
which would extend permanently the outpatient PPS hold harmless
provision for sole community hospitals, along with a number of
other rural initiatives outlined in our written statement.
The AHA is strongly opposed to a provision in the
Administration's FY08 budget that recommends a nearly $5
billion reduction over the next 5 years in payments to
hospitals for graduate medical education. The Medicare
Advantage plans, however, would continue to receive fundings
for GME costs. We ask that the Subcommittee protect the
payments to teaching hospitals, and we suggest that a source of
legitimate savings in the Medicare program would be GME
payments to Medicare Advantage plans that are not reaching the
teach organizations.
In addition, some Medicare Advantage plans are not
reimbursing critical access hospitals at 101 percent of their
cost as traditional Medicare does. H.R. 2159 would correct this
inequity.
Mr. Chairman, hospitals face significant challenges as they
strive to provide the best care possible to Medicare patients.
You have our pledge to help the Medicare Program accomplish its
important goal.
Thank you.
[The prepared statement of Mr. Umbdenstock follows:]
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Chairman STARK. Thank you. Mr. Yarwood, would you like to
proceed?
Mr. YARWOOD. Sure. Do you want me to just go off message,
or do you want me to read this to you?
[Laughter.]
Chairman STARK. Whatever you want to do. I was just
wondering if we changed the Stark laws to the Camp laws whether
the Administration might be more apt to enforce them.
Mr. CAMP. I wouldn't count on it.
Mr. YARWOOD. Well, the staff behind me is--they have over--
under 30 seconds of how long it will take me to go off message.
So, I'll try my best.
STATEMENT OF BRUCE YARWOOD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN HEALTH CARE ASSOCIATION/NATIONAL CENTER FOR
ASSISTED LIVING
Mr. YARWOOD. Most of what I've had to say has been gone
over and somewhat repetitive, but let me start. As you know, I
am honored to be here and don't do this very often, so, thank
you. But I'm on here on behalf of--we have 11,000 member
facilities and nearly 2 million employees that work for us,
significant impact on what we do.
The nursing home of 30 years ago primarily cared for
chronically ill residents with long lengths of stay. Today,
nursing homes are developing to meet specific needs of today's
aging American. We're seeing developments in services for more
clinically complex patients with increased level of short-term
rehabilitative care and services, an average length of stay of
25 days.
During this time, I've also seen a positive shift in which
quality improvement programs are focused on delivering the
highest quality patient care. You can recall 7 years ago, we
had more than 2,000 long-term care facilities in bankruptcy,
primarily as the result of an altered payment system that we
had a hard time adapting to. These bankruptcies really
threatened our ability to take care of folks. But progress has
been achieved due to the fact that providers, regulators,
lawmakers and consumers have established a more productive
cooperation culture, which is undoubtedly contributing to the
rising care quality and the standards of America's nursing
homes.
To continue the positive trends and make necessary
investments to prepare for this aging population, the long-term
care profession requires continued financial stability. The yo-
yo effect hurts us a lot. The link between stable funding and
quality has been noted time and time again.
I might just add that recently we had--we rolled out
something called My Innerview, and what it showed is that in a
survey of nearly 100,000 nursing home patients and their
families, the vast majority, more than four out of five, are
highly satisfied with the care provided in our nursing homes.
Only 3 percent rated the satisfaction level as poor.
As has been said more than once today, at present, there's
an excessively fragmented, irrational health services payment
structure. When it comes to post-acute, now we have it
backward. Our post-acute payment structure is tied to the
setting in which patients are placed, not to the patients and
the services required.
For certain diagnostic conditions, the inpatient rehab
facility and long-term care hospital payments can be much
higher than the SNF payments. Some of this is clearly due to
the variations in the severity of illness. Yet because there
are no common patient assessment tools or outcome measures
across all settings, it is not possible to determine whether
patients are being treated in the most appropriate setting, and
whether resources are being allocated sufficiently and
appropriately.
Until a uniform system is finalized and applied, health
care professionals must do a better job placing acute, post-
acute patients in the most appropriate care settings. We
support the use of hospital discharge planning as the starting
point to standardize the post-acute assessment tools.
Mr. Chairman, at a time when the Administration and
Congress are considering budget cuts in many essential health
care programs, our first priority must be to ensure that we
spend the existing resources wisely, as you well know. We are
severely concerned about the potentiality of the cuts since we
have been working real hard to balance out and stop the yo-yo
effect. We have the lowest overall operating margins of all
major health care providers, and we are operating in an
environment of drastic cost increases in terms of the key
building blocks of labor, energy, liability and technology.
You heard the question someone asked before, is it
appropriate that Medicare subsidize Medicaid? Until we start
sorting out that whole thing, we have no choice. Mark Miller
was correct. We do make a sizable profit, but that goes to
subsidize the Medicaid program, which we're underfunded about
13 percent across the country.
There are also ways to achieve the budgetary savings. A lot
has been said about the 85 percent rule, and I won't dwell on
it. All I can say is that our cost per day averages about $500
compared to $800, $1,000, or whatever. So, we're seeing--we see
no diminution of care. Quite the contrary. We see the same at a
much lower cost.
Secondly, what we--someone also talked about the therapy
cap problem. We would suggest that--we're going through and
doing our studies now. We would suggest that we'll have a
system to offer to you in September or October, so we would
also with CMS to move this therapy cap problem down the line.
It is irresponsible to have a $1,780 cap for someone that needs
incredible rehab therapy. So, we think that we can move in that
way.
Third, we think that there are savings that should be
incurred under what we call the 3-day hospital stay. It was a
neck in the funnel effect a long, long time ago. We think that
it's way past--outlived its usefulness. In fact, what we see is
a discriminatory practice with the Medicare Advantage plans,
because they have no 3-day stay. We do. They do not.
So as we move forward in taking a look at the Advantage
plans as has been the focus, we find there are a lot of
activities that we need to pass on to you and follow up with,
both in terms of how we contract, how they're operated under,
and the different circumstances in which those Advantage plans
are working with us.
So, as I said, a lot of this has been said already today,
and I'll try to stay on message and finish up by saying thank
you very much.
[The prepared statement of Mr. Yarwood follows:]
Prepared Statement of Bruce Yarwood, President,
American Health Care Association
Thank you, Mr. Chairman, and this Committee, for providing the long
term care community such a timely and valuable opportunity to discuss
the long term care profession's ongoing commitment to providing quality
long term care and services, and your efforts, specifically, to foster
a constructive, cooperative environment in which we can continue to
work successfully together on behalf of our nation's most vulnerable
population of seniors and disabled citizens.
I am Bruce Yarwood, President and CEO of the American Health Care
Association, the nation's largest long term care advocacy organization.
I am honored to be here today to speak on behalf of our nearly 11,000
member facilities nationwide, and the nearly 2 million caring employees
who provide critical care and services to 1.5 million frail, elderly
and disabled every day.
My 30 years in long term care provide me a unique perspective on
the state of the profession, and how to best meet the needs of our
patients and residents in the years to come. Over the course of those
30 years, I have been the operator of facilities in northern
California; served as a public servant running California's Medicaid
program, MediCal; served as President of the California Association of
Health Facilities; and have had the pleasure of working with several of
you on this committee here in Washington during my more than 18-year
tenure with AHCA.
I have witnessed first-hand and been a part of many significant
changes in the long term care profession since I began my career. The
nursing home of the early 1970s and through the '80s and '90s primarily
cared for chronically ill residents for long lengths of stay ranging
from many months to several years.
Our 21st century nursing homes are developing to meet the specific
needs of today's aging American, where choice and the need for
specialized services are more defined. We're seeing developments in
both brick and mortar and care services to provide an increased level
of short-term rehabilitative care and services to a more clinically-
complex patient--for an average of 25 days for the Medicare patient.
During this time, I have also witnessed a positive shift in which care
quality improvement programs--collaborative, successful and ongoing
efforts between providers and Government--are focused upon delivering
the highest quality patient-centered care available.
In the context of today's discussion, I would like to preface my
comments and observations by stating that the long term care profession
has made tremendous strides to improve the quality of care and the
quality of life of the nearly three million Americans who require
critical skilled nursing care and services every year. At no time in
the long term care profession's recent history has the commitment to
quality been greater, and I am proud to sit before you today on our
profession's behalf.
Progress has been achieved due to the fact the entire long term
care stakeholder community--providers, regulators, lawmakers and
consumers--has established a more productive `culture of cooperation'--
which is undoubtedly contributing to the rising care quality standards
in America's nursing homes. It is this spirit of a private/public
partnership with a collective mission for quality care where we have
been able to move the needle on quality.
We must be aggressive in addressing the many quality challenges
remaining--and objective in our assessment as to how best to move
forward. There's far more to do, that's for certain, but we are
extremely confident we are heading in the right direction. As we
proceed, we must all ensure the entire stakeholder community is
prepared to meet the growing complex care needs of the baby-boom
retirees--who will inundate our long term care system in the years
ahead.
Economic Stability--The Foundation of Quality Care
In order to continue these positive trends and make the necessary
investments to prepare for this aging population our shared success,
the long term care profession requires a platform of continued
financial stability--and will be the primary determinant to meeting our
collective quality improvement goals and objectives.
That link between stable funding and quality has been noted time
and again--by former Secretary of Health & Human Services Tommy
Thompson, former Administrator of the Centers for Medicare and Medicaid
Services (CMS), Dr. Mark McClellan, and most recently CMS Acting
Administrator Leslie Norwalk, whose article for this month's edition of
Provider magazine states,
``Nursing home providers have been on the leading edge of this
quality movement. Long before hospitals, doctors, home health
providers, pharmacies, dialysis facilities and others came to
the table, the nursing home industry was out front with Quality
First--a volunteer effort to elevate quality and
accountability. . . . Advancing Excellence in America's Nursing
Homes launched last September . . . builds on the 2001 Quality
First campaign and stresses the essential connection between
quality, adequate payment for services and financial
stability.''
As Ms. Norwalk pointed out, Quality First was the first nationwide,
publicly articulated pledge by a community of health care providers to
voluntarily establish and meet quality improvement targets. The
hallmark of our effort has been raising the standards of
accountability--and consumers, taxpayers, and lawmakers have every
reason to expect Government resources to be utilized in a manner that
supports the provision of high quality long term care for every
American. We are proud of our progress thus far--and remain committed
to sustained improvement for the future.
This increased focus on resident-centered care, actual care
outcomes, increased transparency and public disclosure, enhanced
stakeholder collaboration and the dissemination of best practices
models of care delivery is paying off.
Key quality indicators tracked by the joint federal-provider
Nursing Home Quality Initiative (NHQI) have improved since we stood
with HHS and CMS officials to launch this pioneering program five years
ago. Since that time, we have experienced improved pain management,
reduced use of restraints, decreased number of patients with
depression, and improvements in physical conditions such as incidents
of pressure ulcers.
In addition, Mr. Chairman, satisfaction of patients and family
members is a critical measure of quality. Just last week, My Innerview,
Inc. released the second annual report based on an independent survey
of nursing home patients and their families. The report, 2006 National
Survey of Resident and Family Satisfaction in Nursing Facilities,
indicates that a vast majority (82%) of consumers nationwide are very
satisfied with the care provided at our nation's nursing homes--and
would rate the care as either excellent or good.
We have been able to achieve these positive advances due to our
collective commitment to quality--and the Government's recognition of
how critical economic stability is for our sector has enabled us to
continue these trends.
Annual cost of living increases are integral to maintaining
economic stability, and essential to the continued provision of quality
care. Skilled nursing facilities have the lowest overall operating
margins of all major health care providers, and we are operating in an
environment of dramatic cost increases in terms of the key building
blocks of labor, energy, liability and technology.
The Administration's recent budget proposal to freeze the SNF
market basket update in the coming fiscal year, create a prescriptive
annual decrease of the market basket, and totally eliminate
reimbursement for Medicare bad debt, not only infringes on Congress's
authority to determine funding levels for the Medicare program, but
would also siphon off more than $10 billion in funds over the next five
years--the very funds utilized to sustain our quality improvement
efforts.
Further, Mr. Chairman, to continue focusing solely upon Medicare
margins in the nursing home sector does a disservice to those frail,
elderly and vulnerable individuals who receive care and services in
those facilities. Nearly 70 percent of our nation's nursing home
patients rely on Medicaid to fund the `around-the-clock' long term care
and services required, a program that pays, on average, less than $6 an
hour for critical around-the-clock care and services.
But Congress cannot accurately assess the long term care
marketplace and patients' growing needs without considering the rampant
Medicaid underfunding crisis. America's nursing homes lose an average
of approximately $13 per Medicaid patient per day. This annual $4.5
billion loss translated into a negative Medicaid operating margin of
7.06% in 2006--an unfortunate situation that is expected to continue
throughout 2007.
Cost-Efficient, Clinically-Appropriate Post Acute Care
In regard to the so-called Medicare ``75% Rule,'' Mr. Chairman, we
state our unequivocal support for your recent efforts to continue
moving towards full implementation. It is the right policy at the right
time, being implemented for all of the right reasons.
Skilled nursing facilities (SNFs) are clinically appropriate, cost-
effective settings providing the highest quality care and
rehabilitative services. It is essential to note that since
implementation of the 75% Rule was re-initiated in 2004, no Medicare
beneficiary has been denied access to care--and the Federal Government
has saved hundreds of millions in taxpayer dollars.
Recently-introduced legislation to suspend implementation of the
75% Rule is contrary to the interests not only for patients, but also
to U.S. taxpayers--who deserve to see Medicare resources spent in the
most efficient, cost-effective manner possible. Suspending
implementation also runs contrary to the recent changes in the SNF
patient classification system (RUGs 53), which provides incentives for
SNFs to more accurately assess, and provide quality care to the
patients requiring higher intensity rehabilitation services--at
significantly lower cost (more than $500 per day) than those same
patients who receive care in inpatient rehabilitation facilities.
The Rule differentiates the truly high acuity patients who need the
most intensive rehabilitation services provided in a hospital setting
from those who could be cared for in other settings, like SNFs, at the
same high level and quality--and at a significantly lower cost to the
Medicare program. With these policies in place, it is illogical in the
context of both care quality and fiscal prudence for either Congress or
the Administration to take action which delays full implementation of
the 75% Rule.
Therapy Caps--Cost Containment Not in the Interest of Patient
Rehabilitation
After a Medicare beneficiary has exhausted their 100-day Part A
coverage for rehabilitation and post acute care services, they may
require additional clinically necessary therapy services--including
physical or occupational therapies or speech, language pathology--which
is covered by a Part B benefit.
Unfortunately, current policy places arbitrary limits--or a cap--on
the amount of the vital therapy services that are covered under Part
B--an annual cap of $1,780. Practically since the inception of the cap,
Congress has seen the error in this policy and for the past two years
has directed CMS to develop an exceptions process for patients
requiring rehabilitation in excess of the cap. Though this exceptions
process is in place, it is not intended to be a long term solution to
this illogical payment ceiling.
In order to move away from an arbitrary ``therapy cap'' scenario,
we have proposed and are working with Congress and the Administration
to develop a permanent, condition-based payment system for Part B
covered therapy services. Such a system should be crafted to ensure
appropriate rehabilitation services are available to the frail and
elderly receiving care in our nation's nursing facilities when they are
required.
We encourage Congress to require CMS to engage in a condition-based
therapy reimbursement pilot program for one full year, and then fully
implement a similar system nationwide while maintaining the current
exceptions process to protect Medicare beneficiaries.
Moving to a Diagnostic-Based Post Acute Payment System
At present, there is an excessively fragmented and irrational
health care services payment structure. When it comes to post acute
care, for example, we now have it backwards: our post-acute payment
structure is tied to the institutional setting in which patients are
placed--not to the patient and the services required.
CMS requires different patient assessment instruments for three of
the four post-acute care provider categories, and requires each
provider to be certified under separate criteria. CMS ensures patient
safety and quality in each of these settings through vastly different
regulatory structures. In addition, the physical settings in which
patients receive care greatly differ--ranging from a patient's home to
a nursing home to a hospital.
Most post-acute care providers, physicians and others involved in
patient care believe in a hierarchy of acuity among the different
settings, and assume patients with the highest acuity clinical needs
will receive care in the highest acuity setting. Research as well as
provider experience shows that different post-acute care settings
sometimes serve similar patients. This overlap in patient populations
can occur for legitimate non-clinical reasons or clinical reasons that
are not measurable by research. Regardless, the overlap is sometimes
inappropriate, and results in Medicare overpayment.
For certain diagnostic conditions, inpatient rehabilitation
facility (IRF) and long term care hospital (LTCH) reimbursements are
much higher than SNF payments. Some of this is clearly due to
variations in severity of illness. Yet, because there are no common
patient assessment tools or outcome measures across all settings, it is
not possible to ascertain whether patients are being treated in the
most appropriate setting--and whether resources are being allocated
efficiently and appropriately.
AHCA strongly supported language in the Deficit Reduction Act of
2005 (DRA) that served as a first step in reforming the post-acute care
payment system. As is currently being developed, we believe it is
essential for CMS to develop a patient centered uniform screening and
assessment tool for post acute care patients, and a uniform integrated
payment system based on this comprehensive assessment tool focused not
on the site where services are provided but, rather, on the needs of
the patient.
But until CMS can finalize and apply a uniform system, it can do a
better job of placing post acute patients in the most appropriate care
settings. For example, AHCA supports the use of hospital discharge
planning as a starting point to standardize post acute assessment
tools.
For patients with prior hospital stays, CMS should continue to
apply hospital discharge planning that is already required by law and
regulations. AHCA also supports continued Quality Improvement
Organization (QIO) review of the appropriateness of patient placement.
Conclusion
Mr. Chairman, at a time when the Administration and Congress are
considering budget cuts in many essential health care programs, the
first priority must be to ensure we spend existing resources wisely and
efficiently--and in a manner that best serves our seniors, our
taxpayers and our citizens at large.
With the imminent wave of long term care patients before us, I
reiterate that we must work together cooperatively to establish a
health care system--particularly for post acute and long term care--
which is patient centered, not site-centered.
For the reasons I have outlined, Mr. Chairman, it is imperative for
Congress to take action to address the many existing payment and
regulatory inconsistencies for skilled nursing facilities to ensure
that we are able to effectively meet the needs of our aging population
and continue the positive quality trends we are seeing. The Long Term
Care Quality and Modernization Act of 2006 (HR 6199), which was
introduced in the 109th Congress, represents an important step toward
establishing and nurturing a culture of cooperation--a legislative step
we enthusiastically embrace and endorse. This legislation would
encourage investment in capital improvements and health information
technology, support the sustainability of a stable and well-trained
workforce, require joint training and education of surveyors and
providers, and implement facility-based training for new surveyors.
The bill would also enhance the role of nurse practitioners in the
nation's nursing homes and amend current law to allow nursing
facilities to resume their nurse aide training program when
deficiencies that resulted in the prohibition of the training have been
corrected, and compliance has been demonstrated.
On the front lines of care, Mr. Chairman, these proposals are
significant, and they merit strong support.
And from the standpoint of common sense, what is best for our
patients and, indeed, what is ultimately best for the future of our
nation's health care policy, these proposals should be implemented as
quickly as possible.
Each of us here today seeks precisely the same objective--which is
to improve the quality of care received by every long term care patient
in America, and to do so in a manner that helps us best measure both
progress as well as shortcomings.
As I have noted, Mr. Chairman, improving care quality is a
continuous, dynamic, ongoing enterprise. While we are enormously proud
and pleased by our care quality successes, we acknowledge there is far
more to accomplish. And from our profession's standpoint, there has
never been a broader recognition of the importance of quality, or a
broader commitment to ensure it continues to improve by working
together.
Thank You.
Chairman STARK. Thank you.
Mr. BREZENOFF?
STATEMENT OF STANLEY BREZENOFF, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, CONTINUUM HEALTH PARTNERS
Mr. BREZENOFF. Thank you, Mr. Chairman, other distinguished
Members of the Committee. I thank you for the opportunity to
testify before you today. I am the president of Continuum
Health Partners, a major health care network in New York City
that includes four distinguished teaching hospitals; Beth
Israel Medical Center, St. Luke's and Roosevelt, Long Island
College Hospital and the New York Eye and Ear Infirmary.
These hospitals are safety net hospitals, and they are
distinguished in part by the extraordinary degree to which they
provide care to New York's poor, uninsured and the elderly. Of
Continuum's 123,000 inpatient discharges in 2006, nearly 65
percent were Medicare or Medicaid. Our emergency room visits,
over a quarter of a million were more than 45 percent Medicare
and Medicaid. Of our more than 600,000 clinic visits, over 80
percent were insured by Medicare and Medicaid.
We also have a total of 80 residency programs, and in 2006,
trained and educated over 1,000 interns and residents. So,
today I'm pleased to testify on behalf of both the Association
of American Medical Colleges, which represents all 125
accredited medical schools and nearly 400 major teaching
hospitals and health systems throughout the United States and
the Greater New York Hospital Association, which represents
nearly 300 hospitals and continuing care facilities in New
York, New Jersey, Connecticut, and Rhode Island, including many
academic medical centers.
Continuum is also a member of the American Hospital
Association, and I want to strongly endorse the testimony
delivered on their behalf earlier.
I don't have to tell you, teaching hospitals have a unique
role in our nation's health care system. In addition to
providing basic, primary health care services to their
communities and Medicare beneficiaries, teaching hospitals have
the additional societal responsibilities of providing education
for all types of health care professionals, an environment in
which clinical research can flourish, and highly specialized
tertiary patient care and cardiac care as well as transplant
services.
Because of this, teaching hospitals care for the nation's
sickest patients with the most complicated conditions. Teaching
hospitals also provide almost half of all inpatient care, and
provide a huge amount of care for the poor and the uninsured.
Indeed, in many communities, teaching hospitals through their
ambulatory care clinics are the family doctor, particularly in
low income communities where individual practitioners who
accept Medicaid or provide care for the uninsured are few.
One of our essential missions, to teach the next generation
of physicians, has never been more important. The Census Bureau
has pointed out that the elderly, the number of elderly will
double by 2030, and with this will come a sizable increase in
demand for health care services. According to data from the
National Ambulatory Medical Care Survey, patients aged 65 and
older typically average six to seven physician visits a year.
If the annual number of physician visits continue at this
rate, the U.S. population will make 53 percent more trips to
the doctor in 2020 than in 2000, which means that we will need
to produce many more physicians per year than we are producing
now. This has enormous implications for health care policy,
given the length of time it takes to train physicians, 2020 is
virtually now, and we need to take action immediately.
Unfortunately, at a time when the missions of our teaching
hospitals have never been more important, many of them are
struggling financially. The 2004 aggregate operating margin for
all major teaching hospitals was negative 8.3 percent, with the
typical major teaching hospital having a negative 5 percent
operating margin. This is why Federal payment policies
affecting our nation's teaching hospitals are so important.
As you know, Medicare has two special payments for teaching
hospitals, IME and Direct Graduate Medical Education payments.
The IME medical payment accounts fully for the fact that
teaching hospitals must treat more severely ill patients than
other hospitals, and DGME are designed to make sure that
Medicare pays its share of costs.
Unfortunately, the President's proposals, both statutory
and regulatory, put our nation's teaching hospitals at risk. As
the AHA has testified, the President's budget would cut $101
billion from the Medicare and Medicaid programs over 5 years. I
want to talk about two proposals that solely impact teaching
hospitals--the elimination of the Medicare indirect medical
education programs, payments associated with treating Medicare
managed care or Medicare Advantage beneficiaries, and the
complete elimination of Medicaid funding for GME.
First, in regard to Medicare Advantage, the argument seems
to be that in teaching hospitals, we are getting paid twice.
It's an absolute falsehood. We barely get paid once. The truth
of the matter is that it is the Medicare Advantage programs
that have been insulated from declines in funding with the
addition of the 2 percent adjustment that they were able to
get. That funding is what ought to be looked at if in fact
there is an issue of too much funding going in the direction of
IME.
As I noted, our hospitals are operating on negative
margins. To remove that and to protect the Medicare Advantage
programs would be to turn logic on its head.
Thank you.
[The prepared statement of Mr. Brezenoff follows:]
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Chairman STARK. Ms. Chesny?
STATEMENT OF CHRISTINE CHESNY, NATIONAL ASSOCIATION FOR HOME
CARE AND HOSPICE AND MICHIGAN HOME HEALTH ASSOCIATION
Ms. CHESNY. Thank you, Mr. Chairman, Ranking Member Camp
and Subcommittee Members for inviting me to present testimony
on issues related to payment accuracy and legislative and
regulatory payment refinements for the Medicare Home Health
Prospective Payment System.
My name is Christine Chesny. I am president of the Michigan
Visiting Nurse Association, a not-for-profit provider of home
health, hospice, home medical equipment, palliative care and
private duty nursing services to 11 rural counties in the heart
of Michigan. I am the past president of the Michigan Home
Health Association and a finance Committee Member of the
National Association for Home Care and Hospice.
The Prospective Payment System for Medicare Home Health is
based on the right principles as it facilitates outcomes-
oriented patient care planning that is focused on
rehabilitation and self care. However the current Medicare Home
Health Prospective Payment System has been found to be
seriously flawed.
MedPAC states the system fails to fairly set rates in
relation to the level of care in over 75% of the case
categories, yet Medicare's recently proposed changes to PPS
incorporate a presumption of--that we believe to be completely
unfounded.
NAHC has strongly supported CMS efforts to restructure the
system and to replace a poorly functioning case mix adjustment
model. However the CMS proposal assumes all increases in
average case mix weight are entirely due to provider gains. To
assume that any change is attributed to gaining assumes that
nurses throughout the country are deliberately falsifying
patient assessments to garner higher payments for their
agencies.
Given our agency's experience, I believe the increase
reflects the changing demographic of our patient population.
First and foremost, they are older and more frail. In our
agency in 2001, 24.9 percent of our patients were over age 80.
In the most recently completed fiscal year that percentage has
risen to 34.
In general the type of patient referred to us is more--
requires more intense service and has increased significantly
due in large part to hospital DRG policy changes leading to
decreased length of stay and from changes in inpatient rehab
facility reimbursement that have appropriately scared more but
sicker patients into home health services.
This brings me to my second point. Home health is local and
in our service area that means rural. The loss of the rural add
on and the changes in wage index has significantly impacted
rural agencies throughout the country. In our agency the
ramification of rural add on loss and wage index changes total
over $1.2 million on a $9 million budget. We have had to pull
out of several counties.
To my knowledge, no home health provider in these counties
is able to provide the full compliment of Medicare home health
services. Staff shortages are common in many agencies across
the nation. We have been recruiting for a full time physical
therapist for over 900 days.
MedPAC's financial analysis of Medicare home health
agencies alleging a 16 percent margin is unreliable. It
excludes the 21 percent of agencies that are part of a hospital
or skilled nursing facility. When all agencies' margins are
included and given equal weight the true average margin is 3.12
percent.
About one-third of home health agencies have Medicare
margins at or below zero. Our overall margin is 4.9 percent but
drops to 2.8 when United Way, grant and other charitable funds
are removed. We have benefited from the generosity of local
foundations and the receipt of two USDA grants. These grants
allowed us to acquire over 150 tele-health units and other
patient care technology.
The USDA grants, which require an agency match, total over
$600,000. Even using technology to improve our productivity,
our mileage expense is just under a half a million dollars this
fiscal year but down $200,000 before technology. Yet technology
such as tele-health is not included in the allowable costs on
the Medicare cost report, nor does the tele-health monitoring
event count as a home health visit.
As part of the proposed rule to refine the home health
prospective payment system CMS added cuts in the base payment
rate. This would come on top of the President's Budget proposal
to eliminate the inflation adjustment. Over the past 10 years,
the Medicare home health benefit has been cut nearly every
year. Once comprising 8.7 percent of Medicare spending, today
it is 3.2 percent and it's projected to drop to 2.6 by 2015.
Given our growing population of elderly and disabled, cuts
to the home health benefit will only prove to be penny wise and
pound foolish.
In conclusion, Mr. Chairman and Ranking Member Camp, we
respectfully request that the Subcommittee request CMS to
suspend its plan to cut home health payment rates based on
unfounded allegations of case mix creep, not reduce the annual
inflation update, expand access to technology and tele-health,
reinstate the rural add on.
NAHC and MHHA look forward to working with the Subcommittee
to address the home health payment adequacy issues as outlined
in this testimony. This concludes my formal remarks and I'll be
happy to accept any questions.
[The prepared statement of Ms. Chesny follows:]
Prepared Statement of Christine Chesny, on behalf of National
Association for Home Care and Hospice and the Michigan Home Health
Association
Thank you, Mr. Chairman, Ranking Member Camp, and Subcommittee
Members, for inviting me to present testimony on issues related to
payment accuracy and legislative and regulatory payment refinements for
the Medicare home health prospective payment system. My name is
Christine Chesny. I am President of MidMichigan Visiting Nurse
Association (VNA), a not-for-profit affiliate of MidMichigan Health,
the largest health care system in north-central Michigan. MidMichigan
Visiting Nurse Association provides home health, hospice, home medical
equipment, palliative care and private duty nursing services to eleven
rural counties in the heart of Michigan. As a part of the MidMichigan
Health family of services, we support a continuum of care that
includes: 4 acute care hospitals with 481 beds, a critical access
hospital, a 200 bed skilled nursing facility and 40 assisted living
beds, an urgent care center with mobile diagnostics, such as PET
scanning, and over 300 physicians and mid-level providers on staff. I
am also the immediate Past President of the Board of Directors of the
Michigan Home Health Association (MHHA), and a finance committee member
of the National Association for Home Care and Hospice (NAHC).
NAHC is the largest home health trade association in the nation.
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.
Earlier this year, the Medicare Payment Advisory Commission
(MedPAC) recommended that Congress eliminate the home health market
basket update for calendar year 2008. Relying in part on MedPAC's
recommendation the President's fiscal year 2008 budget proposes a
reduction of nearly $10 billion in home health spending by imposing a
five-year freeze in home health payments (2008 through 2012), and
permanent market basket reductions annually thereafter of .65 percent.
Additionally, the Administration also plans to reduce home health
payments through regulatory changes by nearly $7 billion over the same
five years. Home care, with its annual Medicare expenditures of only
$13 billion, cannot sustain such draconian cuts without the loss of
access to care throughout the country.
Preservation of the Medicare Home Health Market Basket Inflation Update
is Needed to Protect and Preserve Care for Medicare
Beneficiaries
MedPAC's rationale for freezing home health payments 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 enacted the MedPAC
recommendation will severely compromise continued access to care.
In specific response to the recommendation, we note the following:
The current 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' 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 led Medicare to
undertake a wholesale revision of HHPPS that is scheduled to
take effect on January 1, 2008.
The considerable shortcomings in the HHPPS are
further illustrated by a dramatic range in profits and losses
among home health agencies (HHAs). About 31% of all HHAs
experienced financial losses under Medicare in 2002; that
figure increased to 33% in 2004. A five-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 1,723 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. When
all agencies' margins are included and given equal weight, the
true average margin is 3.12%. 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
profit margin as representative of over 8,000 very diverse
HHAs.
Our overall profit in home health at MidMichigan Visiting Nurse
Association is just under 5%. This number drops to below 3 percent when
United Way, grant and other charitable funds are removed. We consider
ourselves fortunate. Let me explain. As a non-profit free standing
agency we receive charitable donations to support under and uninsured
patient care including Medicaid. We also benefited from the generosity
of local foundations as our agency first implemented laptop computers
for clinicians in 1998. Since that time we have been even more
fortunate to receive two USDA grants. These grants allowed us to
acquire over 150 telehealth units, pulse based oxygen concentration
meters, blood clotting time meters, and more computers for both branch
offices and clinical staff. The USDA grants, which require an agency
match total over $600,000. No small investment for any home health
agency.
The use of technology has enabled our agency to more efficiently
and effectively care for our patients while maintaining high quality
outcomes. For other agencies unable to make this capital intensive
investment, the economies are lost and their costs continue to rise.
Even using technology to improve our productivity, our average miles
per visit is 22 which translates into an expense of just under a half
million dollars this fiscal year. Yet, CMS does not recognize
telehomecare technology equipment and patient service costs as
reimbursable by the Medicare program.
This brings me to my second point. Home health care services are
local. And in our service area that means rural. The loss of the rural
add-on and the changes in wage index have had significant impact on our
agency and other rural agencies in Michigan and throughout the country.
The wage index calculation is fundamentally flawed as rural hospitals
are continuously reclassified to CBSAs eliminating their costs from the
rural calculation. In our agency, the ramifications of the loss of the
home health rural add-on and wage index change total over $1.2 million
on a $9 million budget. We have had to make difficult decisions
regarding our service area. We eliminated our two most northern
counties 3 years ago. We also eliminated the majority of another county
whose population is only 17,000 residents and are contemplating
reducing the service area in the northern most reaches of two other
counties. The void will not be easily filled. To my knowledge, no one
in these areas is able to consistently offer the entire Medicare
covered services in the home health benefit. Our agency is unable to
afford the price that physical therapists demand for work in these
areas. We have been persistently recruiting for a full time physical
therapist for over 900 days.
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.
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 HHPPS.
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 altogether, which could have potential adverse
consequences on care access and patients' clinical outcomes. 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 health care
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 HHA financial viability. Home
health care 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 HHAs:
----------------------------------------------------------------------------------------------------------------
Year Impact
----------------------------------------------------------------------------------------------------------------
FY 1998-1999 Home health interim payment system (IPS) was implemented.
During two years under IPS Medicare spending for home health
care 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 health care's inflation update was cut by 1.1%.
----------------------------------------------------------------------------------------------------------------
FY 2002 Home health care's inflation update was cut by 1.1%.
----------------------------------------------------------------------------------------------------------------
FY 2003 Total home health care expenditures were cut by 5% off previous
year's rates.
----------------------------------------------------------------------------------------------------------------
CY 2004 Home health care's inflation update was cut by 0.8%.
(3/4 of year)
----------------------------------------------------------------------------------------------------------------
CY 2005 Home health care's inflation update was cut by 0.8%.
----------------------------------------------------------------------------------------------------------------
CY 2006 Home health care's inflation update of 3.3% was eliminated.
----------------------------------------------------------------------------------------------------------------
CMS' Proposed Revisions for the Home Health Prospective Payment System
As discussed earlier, all indications are that Medicare's current
payment system for home health is flawed, and that, rather than across-
the-board cuts that will harm those agencies that can least afford it,
a redistribution of payments through refinements in the home health
prospective payment system is the appropriate course of action.
Medicare recently proposed major changes in the payment system to
institute a more balanced reimbursement method to take effect in 2008.
NAHC has strongly supported CMS efforts to restructure the system and
to replace a poorly functioning case mix adjustment model that
determines the payment rates for 80 different patient categories.
However, as part of the proposed rule, Medicare added the
administrative cuts proposed by the President in his 2008 budget,
thereby jeopardizing the intended benefits of the reforms.
The intended purpose of the payment system changes was to refine
the case mix adjustment so that the payments would be more fairly
distributed. Instead, CMS put forward a blatant effort to extract over
$7 billion from the system. Specifically the proposal would cut payment
rates by 2.75% for each of the next three years (beginning in 2008).
This cut will spell disaster for access to services.
The proposal indicates that the cuts are intended to eliminate the
effect of increases in patient coding that does not reflect changes in
the patients' characteristics. CMS assumes that, because the average
case mix weight of home health patients has risen since the first year
of the PPS (from approximately 1.135 to 1.233), every single point of
that increase has been due to provider ``gaming'' of the system, or
deliberately establishing a higher case mix weight to secure higher
reimbursement under Medicare. CMS refuses to acknowledge that the
patients under the care of home health agencies have dramatically
changed since the inception of PPS in October 2000. Instead, CMS
concludes that there has been absolutely no change at all.
I think that it is important for those of you unfamiliar with the
payment system to understand what this assumption of gaming means. Home
health patients are not simply taken onto service and ``assigned'' a
case-mix weight by the home health agency. Instead, a physician orders
specific care based on the patient's condition and needs. Once an
agency accepts a patient for service, a registered nurse or therapist
must visit the patient and do a full assessment of the patient's
condition--an assessment that often takes as long as 1\1/2\ or 2 hours
to complete. Elements from the assessment are then used to establish a
``score'' for the patient relative to the severity of the patient's
condition, the patient's functional ability, and. the services the
patient requires. It is these scores in these areas--clinical
condition, functional ability, and service needs--that combine to
establish the case-mix score of the patient. The ``score'' then assigns
the patient to a specific case mix weight.
To assume that any change in average case mix weight is
attributable to ``gaming'' assumes that nurses throughout the nation
are deliberately falsifying or changing patient assessments so as to
ensure that the patient will receive a higher score that will translate
into higher payment for the agency. There is no foundation for this
adjustment other than a hazarded guess. Given our agency's experience
with increasing age and acuity in the patient population, I believe the
increase reflects the changing demographic of our patient population.
First and foremost, the patients we treat are older. In our own agency
in 2001, 24.9% of the patients we cared for were over age 80. In the
most recent fiscal year that percentage had grown to 34%. Older
patients are more frail. They are more likely to have numerous health
conditions that contribute to the length of time and the amount of
service required to recover from an illness, or learn to manage a
chronic condition. This translates into a higher level of acuity for
this patient population. In general, the intensity of service required
by patients referred to us by our health system has increased
significantly since the late 1990s.
In addition, we are often the first health care providers in our
local area to see the results of technological innovations in health
care. Residents of our service area who travel to tertiary care centers
return home with devices and treatment modalities requiring home care
follow up. These tertiary hospitals rely on highly skilled home health
clinicians to follow the care plans established and maintain the
equipment, administer the medications and treatments as well as
reporting results to the patient's physician and modifying the care
plan as prescribed. Because these tertiary hospitals are either front
line in clinical trials or early adopters, home care is often the first
place the local health care provider experiences these advances in
medical care.
CMS ``case mix creep'' assumption also fails to acknowledge a
number of changes that have occurred within the health care system that
are having an impact on the types of patients home health agencies are
taking onto service, including:
1. Home health PPS has redrawn both the nature of patients
served and the way those patients are cared for in the home.
Home health has been transformed into post-acute,
rehabilitation-oriented care. Instead of patients receiving the
supportive personal care of home health aides for an extended
period of time, physical and occupational therapy have taken on
a greater role, leading to improvements in function and self-
sufficiency. The average length of stay in home health services
has dropped to less than 90 days from a pre-PPS average of over
150 days. Correspondingly, therapy visits have increased by
over 25% to an average of five in a 60-day episode. This change
was part of the congressional purpose behind the mandate to
create the PPS. That change has benefited the patients and
Medicare in that home health expenditures remain far below 1997
levels of $17 billion.
2. Patients are discharged into home health services from
inpatient hospitals earlier than ever before. This is evidenced
by the institution of the hospital transfer DRG policy. Under
that policy hospital payments have been reduced in multiple
DRGs because the transfer of patients from hospitals into home
health has reduced the inpatient length of stay. Those
discharges have led to the admission of patients into home
health with higher acuity levels than ever before.
3. The alteration of coverage and payment standards at
Inpatient Rehabilitation Facilities (IRF) and Long Term Care
Hospitals (LTCH) has increased the number of rehabilitation
patients in home health as well as their level of service
needs. For example, the phasing in of the 75% rule for IRFs has
steered more patients with higher needs for therapy
appropriately into home health services.
CMS has failed to utilize a sound methodology to determine the
extent to which the increase in case mix weight is due to changes in
patients or changes in coding. In its published analysis, for example,
CMS admits that more patients are admitted into home health care from
Skilled Nursing Facilities (SNF). This is a factor that the CMS scoring
system considers as a strong indication of patients with greater care
needs, yet CMS ignores this fact in reaching its conclusion that all
the increase in case mix weight is ``coding creep.''
More alarming is the fact that CMS considers the increase in
therapy services to be unrelated to any change in the nature of
patients served. Effectively, this conclusion means that CMS considers
the therapy visits to be unnecessary all across the country without
ever reviewing actual patient care records. This conclusion flies in
the face of the significant rehabilitative gains of the home health
patients and the numerous structural changes in other care settings
that impact on the patient population served by home health agencies.
Instead, the primary justification that CMS offers for its
conclusion is that home health agencies have received policy
clarifications and training on how to complete the patient assessment
forms. That justification is a strong indication that CMS is
desperately grabbing onto anything available to explain its action.
In 1997 with the Balanced Budget Act, Congress set in motion a
revolution in the Medicare home health benefit. With changes to both
the payment system and the scope of the benefit coverage, Congress
shifted home health services into a rehabilitative oriented benefit
with strong controls on expenditures. Those goals have been
accomplished yet CMS, through its unfounded and unprecedented
conclusion that patients have not changed since 2000, now seeks to
undermine this remarkable Congressional success by instituting an 8.7%
cut in payment rates through 2.75% reductions in each of the next three
years. That proposal can only serve to derail the gains over the last
seven years. I urge Congress to intervene and stop CMS before damage is
done to Medicare beneficiaries.
CMS Should Not Undermine Its Worthwhile Effort To Refine the Home
Health Prospective Payment System By Making Rate Cuts
In its proposal to reform and refine the Medicare home health PPS,
CMS offers many improvements that will likely redistribute payments in
an improved manner. NAHC and MHHA have long supported efforts to
correct weaknesses in the PPS model. However, the additional proposal
by CMS to reduce the base payment rate to account for increases in the
average case mix weight will jeopardize the effectiveness of the
proposed corrections. The indications of that threat are:
1. The ``case mix creep'' adjustment is applied to all home
health agencies whether they engaged in abusive coding or not.
In fact, any offending agencies are better positioned to absorb
the impact of the cut than those agencies that did everything
above board. This approach makes the many pay for the sins of
the few (if any exist).
2. The increase in case mix weight is primarily due to an
increase in therapy services to patients. To the extent that
the current system encourages inappropriate increases in those
services, the CMS reform proposal institutes a corrective
course. Under the current system, higher payments occur
whenever patients receive 10 or more therapy visits in a 60 day
episode. The proposal replaces the 10 visit threshold with a
system that changes payment rates at 6, 14, and 20 visits, with
additional incremental changes between those points. This
modification is intended to align payment more closely to
patient needs. However, combining this change with the coding
adjustment reduction is in effect a ``double dipping'' in that
payment rates for patients with 10 or fewer therapy visits are
greatly reduced through both the cut and the payment system
reform.
3. The case mix weight adjustment is not the only step taken
by CMS to reduce agency payment rates. To achieve budget
neutrality with the system reforms CMS institutes an additional
adjustment to the case mix weights. This adjustment reduces
payments by approximately 4% based on an apparent assumption
that providers of services will modify their care behavior to
increase Medicare expenditures. The CMS proposal is devoid of
transparency in that there is no explanation as to how this
adjustment is calculated.
4. The true impact of the PPS reforms will not be known until
some time after their implementation. The 8.7% payment rate
reduction over three years through the case mix weight
adjustment seriously complicates any ability to determine
whether care and access change that may occur is due to
weakness in the new payment model or errors in calculating the
case mix weight adjustment. With the serious errors that we
believe exist in that adjustment, the goals of the reform will
not be realized.
The combination of these factors serves to destabilize the home
health benefit at a time when it is intended to achieve greater
accuracy in payment rates. In the midst of this chaos are the Medicare
beneficiaries and the uncertain future for access to care in their
homes.
Conclusion
Home health services are part of the solution to growing health
care expenditures in Medicare. Increasingly, home health services are a
less costly alternative to inpatient services and institutional care.
Home care also has a long history of exceptional care quality.
Invariably, our patients express high marks for home care services. Now
is the time to support and expand access to home health services under
Medicare and all federal health programs to address a growing
population of elderly and disabled. Cuts to the home health benefit
will only serve to prove that it is ``penny wise and pound foolish.''
We need to look no further than to the increased expenditures for
Inpatient Rehabilitation Facilities, Long Term Care Hospitals, and
Skilled Nursing Facilities following on the heels of the massive home
health services cuts in the Balanced Budget Act.
We respectfully recommend that the Committee:
1. Request that CMS suspend its plan to cut home health
payment rates based on unfounded allegations of unwarranted
increases in patient case mix weights as set out in its April
26, 2007 proposed rule.
2. Withhold any reductions in the annual inflation update for
home health until the impact of the implementation of the
prospective payment system in 2008. This step is particularly
essential with the pending $7 billion in cuts in the CMS
regulatory proposal.
3. Expand access to technology and telehealth services in home
health services through grants, loans, and elimination of
restrictions on the use of telehealth within the Medicare
benefit.
4. Reinstate the rural add-on to preserve services in our
nation's rural communities.
NAHC and MHHA look forward to working with the Subcommittee to
address the home health payment adequacy issues as outlined in this
testimony. This concludes my formal remarks. I would be happy to answer
any questions from the Subcommittee members.
Chairman STARK. Thank you very much.
Dr. Walsh, would you like to enlighten us, please?
STATEMENT OF MARY BETH WALSH, M.D., AMERICAN MEDICAL
REHABILITATION PROVIDERS ASSOCIATION
Dr. WALSH. Thank you, Chairman Stark, Ranking Member Camp
and Members of the Subcommittee. I appreciate the opportunity
to testify today on behalf of the American Medical
Rehabilitation Providers Association, representing more than
half of the some 38,000 inpatient rehabilitation beds in the
United States.
Could I ask that my written testimony be made part of the
record in light of members' time?
We are sensitive to the difficult budget pressures and
choices facing this Committee and this Congress under the Pay-
Go budget rule, but we have to urge you to use this constraint
to balance provider payment needs more fairly, much of which
you've heard through this whole panel today.
Medical rehabilitation is that piece of medicine that is
dedicated to providing patients everything they need to recover
from debilitating illness and injury to achieve maximal
functional independence and hopefully return to home and
community living.
The existence of this critical sector of health care is
threatened by some current in-process Medicare policies just at
the time, as you have heard, we are all Baby Boomers aging up,
and our wounded soldiers are returning home and moving out of
acute care into our fragmented post-acute care world.
I should introduce myself. I am a rheumatologist, which is
an internist specializing in the care of arthritis and other
rheumatic diseases. I also direct Burke Rehabilitation
Hospital, which is a 150 bed, freestanding rehabilitation
hospital in New York, a Cornell University academic affiliate
since the 1930s, and I've been trying to do this since 1979.
We are testifying today seeking legislative relief to
address the two critically important issues impacting this
field. The first is the 75 percent rule and the second is the
unprecedented increase in claims denials experienced by
providers across the country of rehabilitation services.
First let me hit the 75 percent rule. When CMS revised it
in 2004 it failed to use that opportunity to update these
criteria in accordance with the 25 to 30 years of medical
practice. Patients with certain cardiac disease, with crippling
pulmonary disease, with cancers, with organ transplants living
in ways that were not imagined 30 years ago have come in need
of this level of service in order to walk out of the hospital.
So, the rule does not represent these changes.
You have heard from several of the earlier panel that there
is no access problem. Well, from where I sit there is an access
problem. Let me describe to you a 72-year-old gentleman with a
lymphoma who 25 years ago in this rule there was no treatment
for so he certainly would not have survived. After a long and
arduous course in an acute care hospital, on and off a
ventilator with various chemotherapy and lung surgery he did
survive.
He is not one of the diagnostic criteria that one could
count, so if he presents to our hospital for an absolutely
medically necessary level of care, first we have to decide are
we close to the percent rule. If it's early in the year we can
take him because hopefully we're not. If we've been careless
and we're a little over it, we will have to deny him access in
order to continue to provide care to any patients. This is an
access problem.
CMS has underestimated the impact. In the final rule it
estimated a .1 percent drop in the number of patients treated.
MedPAC noted that in the first year that was 9 percent. MedPAC
anticipates that rehab hospital patients will drop an
additional 20 percent as we move to the 65 percent rule, and
you have heard that this is some 80,000 plus patients.
The financial impact of the rule has also considerably
exceeded the estimates. In the first year alone it was
approximately $343 million not the much lower estimate.
I think the critical question here, separate from numbers
and dollars, is so what, which lets me talk for a second about
the quality of care provided in inpatient rehab hospitals and
units. There is a longstanding tradition in this field to
measure our individual patient outcomes, how long are they in
the hospital, do they go home walking or in need still of my
distinguished colleague's home care services or are they
independent enough to go to an outpatient program? How many
days did that take? How many of them got sick enough to go back
to an acute care hospital? These are reported. These are
measured. These are quality measures that matter to a patient.
It's their quality outcome, not the state of other things.
There is a growing body of published research that
indicates that in non-hospital based settings, although the per
day cost may and is lower, the length of stay may be
approximately twice, the number of patients needing
rehospitalization because they're not in a hospital with 24-
hour nurses in physicians there may well be about twice. This
all costs money as well as poor patient outcome and suffering.
MedPAC, in its 2007 report to Congress, noted that there
was a decline in one of these areas, the skilled nursing
facility 30-day community discharge had declined consistent
with what I indicated. I would ask that before an entire
infrastructure and this field of medicine is dismantled
completely the government should be required to demonstrate
that its policy changes are indeed in the best interests of the
patients that we serve.
Because my time, I see, has run out I will just in two
sentences tell you that the second area is the fiscal
intermediary denial made under local coverage decisions, which
I think some of you are aware of in your own districts. These
denials do not reference or improperly apply the more than 20
year rules of coverage, so we are asking you to codify in
statute the coverage rules contained in ruling 85 to bring some
uniformity across the country to this field.
So, in summary, I testified because we are urging you to
support the enactment of H.R. 1459. The field is prepared to
work with Congress, with CMS, with all of our other sectors of
the acute and post-acute care world to define an appropriate
continuum of care that should be used to guide patient
placement and Medicare coverage decisions, which will
eventually reduce the true cost to the Medicare Program by
providing the right care in the right place.
Thank you for your patience as I went over, and I'd be
happy to answer any questions.
[The prepared statement of Dr. Walsh follows:]
Prepared Statement of Mary Beth Walsh, M.D., on behalf of American
Medical Rehabilitation Providers Association
Chairman Stark, Ranking Member Camp, and Members of the
Subcommittee on Health, I appreciate the opportunity to testify on
behalf of the American Medical Rehabilitation Providers Association
(AMRPA) concerning payment systems for fee-for-service providers. The
American Medical Rehabilitation Providers Association (AMRPA) is the
leading national trade association representing over 550 freestanding
rehabilitation hospitals, rehabilitation units of acute care general
hospitals, and numerous outpatient rehabilitation services providers.
Our members serve over 450,000 Medicare and non-Medicare patients per
year, and most, if not all, of our members are Medicare providers. They
also represent over half of the 38,388 inpatient rehabilitation
hospital and unit beds in the country.
Let me say at the outset, AMRPA is sensitive to the extremely
difficult budget pressures and choices facing this Committee and this
Congress under the ``pay-go'' budget rules, but we urge you to use this
constraint to balance provider payment needs more fairly. For example,
the financial benefits provided to Medicare Advantage plans have come
at the expense of other providers and deplete the Part A Medicare Trust
Fund; these inequities should be addressed as the Medicare Payment
Advisory Commission (MedPAC) suggests, and as the Committee, assesses
how to proceed. However, it is our hope that the challenges of this
cost-containment environment will recognize the vital role that
rehabilitation hospitals and units play in providing care and services
aimed at placing patients back into their homes and communities where
they can resume their independence.
Mr. Chairman, AMRPA testifies before you today seeking legislative
relief that would address two critically important issues that are
adversely impacting inpatient rehabilitation providers and patients who
need their services: (1) the 75% Rule; and (2) an increasingly
aggressive pattern of medical necessity-based denials against claims
filed by inpatient rehabilitation hospitals and units, the frequency of
which is unprecedented in comparison to any other Medicare Part A
provider segment. AMRPA is vitally concerned about both of these
issues, as they are increasingly eroding access to high-quality
rehabilitation care for those who need it.
With respect to the 75% Rule, we recognize the propensity of this
Committee to defer to the Centers for Medicaid and Medicare Services
(CMS) in the regulatory rulemaking arena. It is critically important to
note, though, that the 75% Rule is no longer a regulation falling
solely within the jurisdiction of CMS. As part of the deficit reduction
legislation enacted into law early last year, Congress asserted
jurisdiction over the 75% Rule and temporarily maintained it as its
current level, 60%, for an additional year. Unless Congress takes
timely action this year, the Rule will remain on its current trajectory
toward escalating to the 65% and then 75% threshold levels. Even if CMS
wanted to alter the 75% Rule threshold percentages on their own, the
agency could not do so given the statutory framework.
The situation I present to you today is perhaps most analogous to
the overreaching that occurred after implementation of the Balanced
Budget Act of 1997. In that instance, the Department and Congressional
Budget Office (CBO) grossly miscalculated and underestimated the
savings that would be achieved by the adoption of certain agency cuts.
In the case of the inpatient rehabilitation hospital and unit (IRH/U)
75% Rule, here too the Department substantially underestimated the
adverse Medicare beneficiary impact and the cost savings impact of its
rulemaking. The 75% Rule threatens seniors by denying them access to
the vital inpatient medical rehabilitation services provided by IRH/Us.
Even in its most recent rulemaking promulgated just a few weeks ago,
the Department continues to publish inaccurate data that significantly
underestimates the beneficiary access implications and financial impact
under the Rule.
Rehabilitation providers are dedicated to helping Medicare and
Medicaid beneficiaries recover from debilitating conditions through
medical rehabilitation. We are all aware that post-acute care will
become more and more important as the population ages. As we prolong
life, previously fatal diseases have become chronic conditions, and
people want the opportunity to regain function and live in their homes
and communities as independently as possible. At the same time, it is
hard to ignore that our aging population, as well as our disabled
veterans returning from combat, keenly need--and will continue to need
indefinitely--access to high-quality medical rehabilitation care. The
very existence of the critical inpatient rehabilitation sector of the
health care arena is threatened by these Medicare policies which are
the focus of my testimony today.
Impact of the 75% Rule
To participate in Medicare under the prospective payment system for
inpatient rehabilitation facilities (IRFs), inpatient rehabilitation
hospitals and units must satisfy the 75% Rule, in addition to other
criteria. The Rule requires that a certain percentage of IRF patients
fall within 13 diagnostic categories. Patients outside the 13
qualifying conditions are often denied IRH/U access.
Background on the 75% Rule
In 1983, when Congress passed the law mandating the use of
diagnosis-related groups (DRGs) as the basis for payment of acute care
hospitals, it excluded certain types of hospitals from that payment
system, including rehabilitation hospitals and rehabilitation units of
general acute care hospitals. However, the Secretary of the Department
of Health and Human Services had to define these facilities in order to
distinguish them from acute care hospitals and thereby exclude them
from the DRG payment system. The Secretary published seven exclusion
criteria that IRFs must meet in order to be paid separately. One of
these criteria for provider participation in the Medicare program is
known as the ``75 Percent Rule'' because it requires that 75% of
Medicare and non-Medicare patients fall within a list of 10 conditions:
stroke, spinal cord injury, brain injury, neurological disorders,
burns, amputation, fracture of the femur, polyarthritis, major multiple
trauma, and congenital deformity.
When CMS revised the 75% Rule in 2004, it redefined the list of 10
conditions in a way that excluded many cases long considered to fall
within the 75% Rule. Herein lies the major compliance and enforcement
problem, as CMS started counting and defining cases differently. In
addition to a substantial narrowing of the universe of cases that could
be deemed compliant with the Rule, other important diagnoses--such as
cardiac, pulmonary, cancer, and transplant--were not added. There has
been little discussion of the medical and/or scientific bases for the
Rule's inclusion or exclusion of various clinical conditions or medical
diagnoses. Furthermore, the revised 75% Rule allows certain patients
who meet the definition of a ``comorbidity'' to be included in the
compliance threshold. Yet when the Rule is fully implemented those same
patients will no longer comply--a policy approach which is logically
and medically inconsistent and is not supported by any medical or
clinically-based evidence or data. The revised 75% Rule simply does not
represent any changes in medical science or practice and their
connections to the advancements made in the field of physical medicine
and rehabilitation over the past quarter-century. It also does not
recognize the decreased mortality rates for certain health care
conditions and how those cases can be improved by intensive
rehabilitative care.
Impact of the 75% Rule
CMS' policy and savings objectives clearly have been achieved and
continue to be achieved. The 75% Rule impact on patient access has been
significant, even after implementation at only the 60% compliance
threshold. Access is most restrictive for patients whose medical
rehabilitation care benefits from newer rehabilitation specialties such
as cardiac, pulmonary, pain, and cancer care. As a result, the number
of Medicare cases treated in IRFs declined by 88,000 patients during
the first two years of 75% Rule phase-in, some rehabilitation hospitals
and units have closed, and many providers have significantly reduced
beds, services, and staff. All of this confuses patients, physicians,
and general acute-care hospitals. It also forces rehabilitation
hospitals and units into an arbitrary, quota-based lottery system for
their services, depending on whether they are ``meeting their
number''--meaning the same patient could be admitted at the beginning
of the month but not admitted toward the end of the month, regardless
of physician judgment and medical necessity.
CMS Underestimated the Impact of the 75% Rule in Terms of the Patients
Who Are Prevented from Accessing Care in Inpatient
Rehabilitation Hospitals and Units
Due to the revisions made to the 75% Rule, a large number of
patients with medical conditions and diagnoses that previously
satisfied the Rule are unable to access the care and services of
inpatient rehabilitation hospitals and units. Multiple reports have
shown that patient volume has fallen at a rate much greater than
anticipated by CMS when adopting the 75% Rule. In the Final Rule of May
7, 2004, CMS indicated that it anticipated a 0.1% drop in the number of
patients treated in IRFs during the first full year of implementation
of the Rule. This number has been shown through multiple analyses to be
grossly understated in terms of the devastating impact implementation
of the Rule has had on inpatient rehabilitation hospitals and units.
There has been a dramatic drop in total volume, by specific types of
cases, as well as a number of unintended consequences of the Rule.
In 2006 and 2007, the Medicare Payment Advisory Commission (MedPAC)
examined the payment adequacy of the IRF PPS. In both years, MedPAC
examined closely the impact of the 75% Rule on the margins and
operation of IRFs. It noted in 2006 that the volume of patients dropped
by 9% from 2004 to 2005 due to implementation of the Rule. In its 2007
report, MedPAC anticipates that patient volume in IRFs will drop an
additional 20% as facilities come into compliance with the 65%
compliance threshold slated to take effect on July 1, 2007. The
Commission also noted in its March 2007 report that only 449,321 cases
were treated in IRFs in 2005, compared to 496,695 cases treated in
2004.
The inpatient medical rehabilitation field has independently
analyzed the total volume drops since the inception of the Rule and
also found that the total impact well exceeds the original estimates.
Using data supplied by the field, the Moran Company has analyzed the
impact of the 75% Rule and tracked the decline in caseload on a
quarterly basis. The data reviewed originated from two large industry
data bases, representing 75% of all Medicare IRF discharges. The Moran
Company report through the second quarter of 2006 notes that the total
Medicare case load declined by 88,053 cases over the first two program
years of the Rule. It also notes that for program year 2006, the
Medicare case load was down 12.4% from Program Year 2005 and 18.4% from
Program Year 2004.
In a separate analysis, AMRPA/eRehabData noted a decrease in
Medicare patients for the first year of 34,624 and of non Medicare
patients of 5,970 compared to the year before the implementation of the
Rule and a decrease of over 85,282 Medicare patients and 9,428 non-
Medicare patients in the second year of the Rule compared to the year
before implementation of the Rule. In the third year of the Rule, which
is almost completed, AMRPA anticipates that even though the threshold
has been held at 60% for a second year, the number of people denied
care will increase to 118,281 Medicare patients in anticipation of
moving to the 65% level as compared to the level of cases in the year
prior to the Rule's implementation.
Unless legislative relief is provided, Congress should expect even
more caseload decline as implementation of the 75% Rule continues.
eRehabData estimates that once the compliance threshold moves to 65%,
the number of Medicare patients not served will increase to 138,344
compared to the year before the Rule was implemented. This represents a
decrease in volume of 29.57%, which supports MedPAC's estimates.
The Rule's Intended and Unintended Consequences on Patient Access
As noted above, the medical rehabilitation field has also found
that certain types of cases are no longer receiving care in inpatient
rehabilitation hospitals and units. The Moran Company has been tracking
the change in the types of cases denied care. In its Q1 2007 report
``Utilization Trends in Inpatient Rehabilitation: Update Through
Q1:2007,'' it notes that the ``five categories with the largest
declines account for nearly 90% of the total decline in caseload in the
first quarter of 2007, relative to the first quarter of 2004.'' These
five categories are as follows: (1) replacement of lower extremity
joints, (2) miscellaneous cases which includes all cancer cases, (3)
cardiac, (4) pulmonary, and (5) other orthopedic cases. Of great
interest, however, is that since the second quarter of 2006, there has
been a decrease in the number of stroke cases served.
AMRPA has tracked the changes in the volume of cases by type. We
note also that the changes from the first quarter of 2004 to the first
quarter of 2007 show that the largest drops are in the categories of
osteoarthritis (-79.32%), pulmonary (-57.68%), amputation, other
(-58.49%), pain (-50.82%), replacement of lower extremity joint
(-49.51%), and rheumatoid, other arthritis (-49.66%). As with the Moran
data, there is also a drop, albeit smaller, in treatment of stroke
patients. Additional AMRPA analysis of Impairment Group Codes (IGCs)
found a number of additional changes in access which are quite
disturbing. Stroke cases, brain injuries, cerebral palsy, burns,
specific types of paraplegia and quadriplegia, and other complex cases
are being treated less and less frequently in the inpatient
rehabilitation setting.
Where patients who are denied admission to inpatient rehabilitation
hospitals and units go to receive services is not clear. Of greater
concern are the outcomes of their care in terms of the key hallmarks of
rehabilitation. These include length of stay, mortality, infection,
complication rates (e.g. DVT, pneumonia, other), readmission to acute
care, and primary motor and cognitive function.
Of grave concern is the decline in both the number of traditional
comprehensive medical rehabilitation cases and the number of patients
with newer conditions that benefit from medical rehabilitative care.
CMS's changes in 2004 essentially eliminated most arthritis and single
joint replacements from being served in IRH/Us. There is also a drop in
the areas where medical science is making great advancements in
mortality and longevity, turning serious cardiac, respiratory and
especially cancer diagnoses into conditions to be managed (frequently
after surgery), not death sentences. Even before the IRF PPS was
enacted, the medical rehabilitation field saw an increase in cardiac,
pulmonary and cancer patients. Cardiac cases increased from 2.47% of
cases in 1994 to 5.71% of cases in 2002; pulmonary from 1.98% is 1994
to 2.71% in 2002 and the miscellaneous category, which includes cancers
and other serious pulmonary cases, from 5.43% in 1994 to 11.21 % in
2002. We believe this growth reflects underlying improvements in
medical science, decreases in mortality, and therefore increased need
and benefit from medical rehabilitation.
By 2006, cardiac cases had dropped to 4.17%, pulmonary to 1.53% and
miscellaneous to 9.44% of the total cases. These cases are complex,
resource-intensive cases and reflect the underlying shift in successful
acute medical treatment and the then subsequent need for intensive
hospital rehabilitation services. We do not believe that this effect
was necessarily intended and that it may be of concern to hospital
providers, patients with these conditions, their families, advocates on
their behalf, and policy makers.
CMS Significantly Underestimated the Rule's Financial Impact
AMRPA has also tracked the financial impact of the Rule and again,
it considerably exceeds CMS' original estimates. According to CMS' 2006
data, total Medicare spending amounted to $408 billion dollars, of
which $6 billion is attributable to inpatient rehabilitation hospital
services; therefore, inpatient rehabilitation spending represents only
1.5% total Medicare spending. CMS estimated that the total savings for
IRF payments in the first year would be $5.4 million. When CMS
accounted for care in other settings it estimated total net savings of
$2.4 million. Using the eRehabData database, we estimate that the drop
in payments to IRFs in the first year of the Rule for Medicare patients
alone was approximately $343 million and for non-Medicare patients a
decrease of $59.2 million as compared with payments in the year prior
to implementation of the Rule. In the upcoming fourth year of the Rule
when the compliance threshold moves to 65%, we project that the drop in
Medicare payments alone to IRFs will be $1.372 billion as compared to
the year prior to the Rule; at 75% it will be $1.8 billion compared to
payments in the year prior to the Rule's implementation. Given the size
of this sector, this staggering decrease results in disproportionate
financial consequences.
Congress and the agency must appreciate and recognize that the
continued drops in patients, the increases in costs that cannot be
otherwise covered by payments and the overall drop in payments cannot
be sustained by the IRH/U field for an indefinite period. The
Government has vastly underestimated the impact of this Rule at every
turn--drop in total volume, impact on unintended populations, failure
to recognize the growing types of patients that clearly need inpatient
hospital and unit rehabilitation services and financial devastation by
several orders of magnitude, unless the true intent of the Rule is to
eliminate the inpatient rehabilitation hospitals and units as providers
under Medicare.
CMS Should Retain Comorbidities for Purposes of the Exclusion Criteria
in order to Ensure Access for Patients who Need Specialized
Care
AMRPA urges enactment of the statutory protection provided by the
legislative provision in the Tanner-Lowey-Hulshof-LoBiondo bill which
provides for permanent retention of the use of comorbidities. AMRPA
believes that the use of the comorbidities that meet the definition
outlined in 412 C.F.R. 412.23(b)(2) and as listed in Appendix A of
Transmittal 938 should be retained indefinitely or permanently for
determining compliance with the threshold percentage. Comorbidity
considerations represent a significant component of patient access to
medically necessary inpatient rehabilitation. Simply shifting
percentages does not change the clinical characteristics of the
patients being admitted to an IRH/U overnight. There are patients who
have a comorbidity that falls into one of the 13 conditions and have a
significant decline in their functional ability. These are usually
severely compromised patients for whom appropriate treatment is not
available in other settings. They have significant functional
involvement by definition due to the comorbidity or other complication
and generally constitute both medically and functionally complex
patients. CMS estimates that 7% of cases come from comorbidities--so
moving to a full threshold of 75% is actually moving to 82%.
CMS Should Modernize Inpatient Rehabilitation Criteria, Per Clear
Congressional Instruction
The failure to modernize the 75% Rule in any meaningful way since
1985, in combination with the agency's regulatory and compliance
activities, have resulted in policies which are dismantling the
infrastructure of inpatient rehabilitative medicine in the United
States today. What is astonishing is that the agency's policies are
completely without explicit Congressional authorization. In fact,
Congress has repeatedly expressed contrary intent. Initially, Congress
conveyed its opinion through letters to the Secretary signed by more
than half of the House of Representatives and 82 Senators--to reverse
the regulatory course and halt further implementation of the Rule until
the issue could be studied and a different regulatory course pursued.
The Department disregarded no less than three formal Congressional
requests to halt implementation of the 75% Rule. In a year when there
was no appropriate moving authorizing Committee legislation, the
Appropriations Committees of both the House and Senate included
Conference Committee report language directing the agency to develop an
alternative to the 75% Rule and enlist the assistance of an independent
expert panel convened under the auspices of the Institute of Medicine
(see H.R. Rep. No. 108-401). Congress clearly recognized that statutory
intervention was required and therefore in 2005, imposed a freeze on
the compliance threshold at 60 percent. Quite candidly, we perceive
most Members of Congress would have gone further than the one-year fix
provided at that time. The statutory language provided then now compels
additional Congressional action in 2007. It is time to put the 75% Rule
controversy behind us.
Codification of Medical Necessity Standard is Essential to Protect
Patients and Provide Stability
In addition to the 75% Rule, inpatient rehabilitation hospitals and
units have endured an unprecedented level of medical necessity denials
over the past two years. Numerous CMS contractors have denied coverage
for services provided in inpatient rehabilitation hospitals and units
to thousands of patients. These denials are frequently based on local
coverage determinations (LCDs) or case-by-case rationales that fail to
reference or properly apply the binding rules for coverage that have
existed for the past 22 years.
In order to address this problem, AMRPA supports codification of
HCFA Ruling 85-2 in the Medicare statute, as called for in H.R. 1459.
This ruling, which CMS issued in 1985, sets clear, clinically-based
rules for inpatient rehabilitation coverage which have been used by
HCFA and CMS over more than two decades to determine what constitutes
medically necessary inpatient rehabilitative care. Because of the
wording which gives primary deference to physician judgment, we believe
this ruling is just as effective today as it was 22 years ago at
establishing medical necessity for inpatient rehabilitation services.
HCFA Ruling 85-2 established two basic requirements that must be met
for inpatient hospital stays for rehabilitation care to be covered:
1. The services must be reasonable and necessary (in terms of
efficacy, duration, frequency, and amount) for the treatment of
the patient's condition; and
2. It must be reasonable and necessary to furnish the care on
an inpatient hospital basis, rather than in a less intensive
facility, such as a skilled nursing facility (SNF), or on an
outpatient basis.
The Ruling then sets forth eight criteria, which, if satisfied,
demonstrate that both of these two requirements for inpatient
rehabilitation are satisfied. These eight criteria stipulate that the
patient must require:
1. Close medical supervision by a physician with specialized
training or experience in rehabilitation;
2. Twenty-four hour rehabilitation nursing;
3. A relatively intense level of rehabilitation services;
4. A multi-disciplinary team approach to delivery of the
program;
5. A coordinated program of care;
6. A significant practical improvement must be likely;
7. The rehabilitation goals must be realistic; and
8. The length of the rehabilitation program must be
reasonable.
Over the past several years, Fiscal Intermediaries have issued a
number of very restrictive local coverage determinations, also known as
``LCDs,'' that deviate from HCFA Ruling 85-2 in significant and
troubling ways. For instance, these LCDs sometimes require as a
precondition to inpatient rehabilitation coverage that beneficiaries
prove that their care could not be furnished in a skilled nursing
facility--which is an impossible burden, requiring a detailed knowledge
of the level of care provided across the SNF industry, which often
varies considerably. Moreover, this is a completely subjective
determination. Other LCDs create ``rules of thumb'' precluding coverage
for certain patients, such as those who undergo joint replacements,
with little or no regard to the individual beneficiary's comorbid
conditions or medical history. We believe that these LCDs impermissibly
supersede the patient-centered, clinically-based criteria of Ruling 85-
2.
Fiscal intermediaries have used these LCDs to deny retrospectively
thousands of claims, both through prepayment reviews and through post-
payment audits. Even in the absence of LCDs, intermediaries are denying
claims on questionable grounds similar to the LCDs just mentioned.
Other Medicare contractors, such as Program Safeguard Contractors, are
similarly denying claims across the board in a wholesale fashion.
These denials place a significant burden upon the rehabilitation
hospitals and units affected, both in terms of the funds withheld and
in the administrative burden of appealing the denials. AMRPA members
have appealed many, if not all, of their denied cases. Our members tell
us that they are winning the vast majority of their appeals in hearings
before administrative law judges (ALJs). These ALJs, unlike earlier
levels of review, are not contractors of CMS. The ALJs, therefore,
function to provide independent third-party review. The high level of
reversals of these claim denials demonstrates that Medicare reviewers
are not adhering to the binding rules of coverage in Ruling 85-2.
Providers and patients need the statutory protection from Congress for
the current medical necessity standard.
This is why we urge Congress to codify in statute the coverage
rules contained in Ruling 85-2 and make clear that LCDs are not to
deviate from this federal standard. Ruling 85-2 sets straightforward,
clinically-based criteria for evaluating medical necessity. It
effectively safeguards the Medicare Trust Fund while also ensuring that
Medicare beneficiaries receive the appropriate level of rehabilitation
care to which they are entitled.
Recovery Audit Contractors are Compounding the Instability in the Field
AMRPA is also deeply concerned about how the Recovery Audit
Contractor (RAC) process is unfairly amplifying the same misguided
critical review and denials based on medical necessity with devastating
consequences for the viability of providers in the states where RAC
activity is occurring. Authorized as a demonstration project by the
Medicare Modernization Act of 2003, RACs have been established in
California, New York, and Florida, but will soon be expanded
nationwide. RACs are charged with recovering overpayments and are paid
a percentage of every dollar that they recover. The RAC demonstration
is the first time the Medicare program has ever paid a contractor on a
contingency basis for overpayment work or claims review. We believe
that this payment scheme creates perverse incentives to deny as many
claims as possible and place the burden on providers to appeal these
denials.
AMRPA strongly supports efforts by CMS to identify and eliminate
fraudulent and/or erroneous Medicare payments to maintain the integrity
of the Medicare program. However, the RAC program appears to be more
focused on collecting money regardless of the impact the audit activity
has on hospitals and patients. The financial incentives in place for
contractors have resulted in aggressive and inappropriate audit
activity. Recovery audit contractors may retain a significant
percentage of recovered payment, and contractors may be able to retain
recovered payments even when CMS overturns the auditor's coverage
decision. In addition, the appeals process is complicated and fraught
with inherent barriers that deter providers from seeking appeals to RAC
determinations. AMRPA thinks that the combination of financial
incentives for contractors and perhaps insufficient oversight by CMS of
RAC activities is wreaking havoc, adding instability to the field, and
may be resulting in misapplication of Medicare policy.
A prime example of this problem can be seen in the State of
California. The RAC in California, PRG-Schultz, has focused much of its
energy on inpatient rehabilitation hospitals and units. AMRPA has heard
reports from some providers that PRG-Schultz has denied virtually every
claim it has reviewed. Single hospitals have had over 300 claims denied
worth several million dollars. The denial letters that they receive
from PRG-Schultz are usually form letters that repeat stock phrases
that purport to explain the denials. It is clear, however, from the
volume of denials, the time spent reviewing each case, and the pro
forma nature of the explanations that this RAC is not conducting a
meaningful medical review and applying the coverage criteria of Ruling
85-2. According to the California Hospital Association, these audits
have resulted in significant financial hardship throughout the state's
hospital system and may threaten access to rehabilitation services in
California.
Quality of Care in Inpatient Rehabilitation Hospitals and Units
Inpatient rehabilitation hospitals and units provide high quality
care to patients suffering from newer rehabilitation conditions, such
as cardiac, cancer, transplants, pulmonary, and pain, as well as joint
replacement patients who would also benefit from medical advancements.
However, AMRPA remains concerned that patients are being turned away
from quality inpatient rehabilitation care to settings less-suited to
treat intense rehab needs. While there is a long-standing tradition in
the rehab field to measure quality and outcomes of individual patients,
programs, and facilities, comparable efforts do not exist in SNFs, the
setting in which most patients turned away from IRH/Us ultimately find
treatment. In fact, as MedPAC and GAO have underscored to Congress,
there are no systems in place in SNFs, Acute Care Hospitals, Home
Health Agencies, or Long Term Acute Care Hospitals to determine
rehabilitation necessity, program activity, patient benefits or need,
or outcomes. Interestingly, while 78% of SNF admissions in the RUG
system receive ``rehabilitation,'' current SNF data collection does not
include appropriate rehab or other outcome data. The SNF field has no
way to collect such information, so we do not know what percentage of
these patients ever become independent at home, at what cost, and over
what period of time.
Notably, concern about the comparability of care in other health
care settings has been articulated by not only rehabilitation
providers, but also MedPAC and CMS. In its March 2007 Report to
Congress, MedPAC noted that there was a decline in the quality of care
for SNFs. At its April meeting, MedPAC further examined the issue of
quality of care in SNFs. Dr. Andrew Kramer presented his study which
examined the changes in factors associated with SNF rates of discharge
to the community and rehospitalization between 2000 and 2004. He found
that the rate of discharge to community is dropping and that
rehospitalization rates are up, both of which he suggests reflect
declining quality of care in SNFs. CMS is currently seeking to explore
development of measures and systems for SNFs and all post-acute care,
but it will take years to complete and make this new approach
functional. However, despite the absence of measures, goals, standards
for SNFs and LTCHs similar to IRF standards, and without a clinical
evidence basis for action, CMS has doggedly moved forward with
regulation and policy changes that have forced thousands of your
constituents away from receiving their medically necessary care in a
rehabilitation hospital or unit, and instead channeled them to SNFs and
other settings.
What is perhaps most startling is the agency's dogged pursuit of
the 75 percent policy absent any clinical data or outcomes analysis on
the quality of care received, the overall costs to the health care
system (including costs of rehospitalization, longer lengths of stay in
other settings), and the impact on patient lives. The Department has no
way of knowing what harm to patients has occurred since there is no
evidence being accumulated.
An expanded national research effort is of paramount importance.
AMRPA has been concerned since the inception of the 75% Rule that
patients would not receive the same quality of care they receive in an
inpatient rehabilitation hospital or unit. Therefore, in the past year,
the field created the ARA Research Institute and has privately
sponsored more than $2 million of research in an effort to understand
and improve the quality of care, outcomes, and cost-effectiveness of
the rehabilitation hospital compared to other settings, and to develop
proper medical necessity standards. The newly formed ARA Research
Institute has funded eight studies to date and, under sponsorship of
other leading national associations, held a ``State of the Science
Symposium'' in February 2007 to discuss the work in progress. We have
shared abstracts with CMS, requested its comments and encouraged CMS to
attend the Symposium.
My own hospital has participated in research to compare care
between IRFs and SNFs. A study conducted at Burke Rehabilitation
Hospital analyzed whether outcomes differed between patients with
single knee or hip joint replacement surgery undergoing rehabilitation
in an inpatient rehabilitation facility compared to a skilled nursing
facility. Patients, matched for age, gender, operative diagnosis and
admission ambulation function (FIM), who received rehabilitation in the
IRH/U had, on average, a shorter length of stay and superior functional
outcomes. The study is being repeated to include hip fracture patients
as well, and to match for comorbidity, and measure actual dollars
expended. The preliminary outcomes data shows that the clinical
outcomes in subsequent study are similar to the results previously
published. Patients treated in the rehabilitation hospital were less
likely to require re-hospitalization, have shorter lengths of stay, and
were more likely to be discharged home.
In the absence of governmental funding, the industry has taken
steps to engage in the necessary research and modernize criteria for
treatment. AMRPA and other leading organizations have produced an
alternative model for defining medical rehabilitation hospitals and
units, to demonstrate that the 75% Rule is not necessary to properly
distinguish between rehabilitation and acute care hospitals. The
American Academy of Physical Medicine & Rehabilitation (AAPM&R) has
offered an approach that is perceived to be a better way of sorting
patients into the proper setting. The field is convinced that it can
work together with CMS and that patient-centered criteria for site of
care can be developed.
Every day, AMRPA member hospitals hear clinical stories of
frustrated and upset Medicare beneficiaries who are unable to receive
the care they need and want because of these rules, and from angry
physicians who cannot send their patients to the program they believe
to be the best and most appropriate. SNFs play an important role in our
health care system, but they are not a substitute for rehabilitation
hospitals and units. Stated most simply, there is no evidence to
support the Government and SNF industry's contention that care in other
settings is of the same quality and less costly. Studies are now
showing that the opposite is true. In general, for otherwise similar
patients, those who are cared for in a rehabilitation hospital or unit
make twice the progress, in less time compared to SNFs. Furthermore,
given the increased length of stay in SNFs over IRH/Us, arguably
Medicare payments to SNFs and IRFs are likely to be comparable, thereby
bringing into questions CMS' claims of cost savings.
The Executive Branch to date has provided no evidence that its
policy initiatives in this arena are clinically or evidence-based.
Before an entire infrastructure and this field of medicine is
dismantled completely, the Government should be required to demonstrate
that its policy changes are in the best interests of (or at least will
not harm) Medicare beneficiaries. In this instance, private sector
patients are harmed as well in terms of access to medically necessary
services. Moreover, the ultimate costs to the health care system are
completely unclear. Aside from quality of life considerations, under
the mantle of cost-savings, the agency policies may well result in
higher long-term Government spending as patients receive care in other
venues.
AMRPA Recommendations
Mr. Chairman, I testify here today because the 60% compliance
threshold legislative relief Congress provided (in Section 5005 of the
DRA) expires for cost-reporting periods beginning on or after July 1,
2007. Recognizing the statutory problem in front of this Committee,
Representatives John Tanner (D-TN), Nita Lowey (D-NY), Kenny Hulshof
(R-MO), and Frank LoBiondo (R-NJ) introduced legislation that would
freeze implementation of the 75% Rule as an immediate and short term
fix to the current crisis. The Preserving Patient Access to Inpatient
Rehabilitation Hospitals Act (H.R. 1459) presents a reasonable and
balanced approach--the legislation extends the 60% compliance
threshold, continues the use of comorbidities, and codifies current
medical necessity standards established by HCFA Ruling 85-2. The
Tanner-Hulshof bill, although relatively recently introduced, already
has more than 150 cosponsors. Members of Congress have become keenly
aware of the adverse consequences to date emanating from the 75% Rule.
We urge this Committee to address this problem and provide time
sensitive legislative relief in the first moving Medicare legislative
vehicle considered by this Committee. AMRPA strongly urges Congress to
enact the provisions in H.R. 1459 as soon as possible this year to halt
the continued hemorrhaging of this sector.
Unlike the recommendations seen for SNFs and LTCHs, MedPAC
recommended a positive 1% update in the market basket for inpatient
rehabilitation hospitals and units for FY 2008. The IRH/U field cannot
absorb additional resource cuts that would further heighten volatility
and threaten access to care as IRH/U beds, units, and hospitals. We
urge Congress to support a positive market basket update for inpatient
rehabilitation hospitals and units in FY 2008.
Finally, the field is prepared to work collaboratively with
Congress, CMS, and the other sectors of the post-acute care world to
define together an appropriate continuum of care, the distinctions
among the various segments of the provider community, the criteria that
should be used to guide patient placement and Medicare coverage
decisions. The field also supports the need for research to be
conducted and supported to create evidence that should be used to guide
public policy.
We know Congress and this Committee face difficult payment system
decisions. We seek favorable consideration by your Committee, and we
pledge to work with you and your staff, and CMS. AMRPA and its members
are convinced that if we work together, we can shape a rational and
better health care delivery system that improves outcomes, increases
access, more accurately places patients in appropriate settings, and
reduces the true costs to the Medicare program and beneficiaries alike.
We appreciate the opportunity to appear today, and I would be pleased
to respond to any questions.
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Chairman STARK. I want to thank the entire panel. I just
very quickly--we as a Committee I suppose could do nothing, and
then the doctors would take that 10 percent dip in their fees
and the three of us wouldn't be able to get medical care any
place in the United States that we would feel comfortable
asking for it.
On the other hand, we can begin to follow a variety of
recommendations and cuts across the board. To the extent that
that's all we can do, I think sometimes we fail to provide it.
It's not easy to write legislation that applies equally in
Louisiana, Michigan, California and North Dakota for example.
There are different needs, different practice patterns,
different requirements.
To the extent that you all representing your various groups
can help us determine how we sort the wheat from the chaff,
Bruce, you indicated that there are some units that do better
than others. Teaching hospitals have a particular need. Rural
hospitals in many cases have a need.
Not all long-term care facilities, Ms. Chesny, have
negative margins. Some in the old days maybe had a 16 percent
margin. That's different from somebody who has a zero to
negative margin.
But you have to help us determine how best we can write
legislation that does sort this because if we try to be as fair
as we can--people are talking about--I don't know who keeps
leaking this, I suspect it's Dave, that I am bound and
determined to cut $50 billion or save $50 billion so we can
fund SCHIP. Well, probably if we fund SCHIP the majority of
that goes back to providers, more children's hospitals, more
pediatricians. This is kind of a zero sum gain, and it is not
easy for us.
Now to your credit and the credit of the American Medical
Association, the California Medical Association, almost all of
the providers have come to us, I don't know whether Mr. Camp
has had the same experience, and said they recognize that this
is not going to be a year of huge financial increase. As a
matter of fact, some are predicting that they may not get every
nickel that either the president's budget or MedPAC
recommended.
I don't quite know how we're going to adjust to that to get
a vote that will get us through the House and the Senate and
get the President to sign. But without your help we'll make a
mess of it because we could be pushed as one particular group
of providers is suggesting they don't want to be in the room.
Well, without being able to determine who's better and
who's worse, who's more deserving and less deserving, the only
alterative left to us is across the board cuts. I don't like
those. I don't think they--we're apt to harm people that ought
not to be harmed and not help the people who need help.
So, that's a long-winded way of saying you all could be
helpful to us. You don't have to endorse cuts but you could
help us learn how to determine what the priorities ought to be
as between the competing interests in your own group, whether
it's rural long-term care providers or home health or whether
it's inner city home health. There's a difference I think in
the costs and the problems faced.
So, I'm asking you for more than just the excellent
testimony you've given us today but to help us and help our
staff as you used to help Chip figure out we can make these
decisions and balance the interests of the providers, the
beneficiaries and the taxpayers. My measure is usually when
everybody on the Committee is scowling we've got the right mix
and that's when we ought to drop it down a little. If anybody
is smiling, they're taking home something that the rest of us
don't know about.
Let me just ask you to run down the line here and ask if
each of you care to or have experience with Medicare Advantage
and how the Medicare Advantage payments compare to payments
under traditional fee-for-service programs, and do you have any
problems with beneficiary access or any other problems with
Medicare Advantage that we might look for. If you don't, don't
bother.
Chip.
Mr. KAHN. Though the Medicare Advantage payments are lower
than Medicare payments I think the issues with Medicare
Advantage though go to the question of fairness and equality
between beneficiaries. I think we have the situation today
where we want to have--I think we want to have as a country a
Medicare Program that gives people the options to have the kind
of coverage they had when we were privately employed or before
they retired, but I think we have to examine how much that
option is worth in terms of equality between Medicare
beneficiaries.
Chairman STARK. Mr. Umbdenstock.
Mr. UMBDENSTOCK. Mr. Chairman, we hear from our members in
three areas around Medicare Advantage. Number one, in the
private fee-for-service plans there's a lot of confusion as to
what's covered, what's not covered, what benefits the members
have, and they often show up at our front door or ER not aware
of that and we only find out--and they find out later.
Another area of significant concern that we hear a lot
about is from our rural members where the Medicare Advantage
Plans are not paying the critical access hospitals the way the
traditional plan is and that causes significant challenges for
our members.
The third, your comment about where to maybe look for
opportunities for savings has already been brought up in my
comments and in Stan's around the issue of the payments to
indirect, on indirect medical education. To those plans we
think there's a legitimate place to look there as well.
Chairman STARK. Bruce.
Mr. YARWOOD. We're finding a very confusing pattern out
there about long-term care because it's not the thing that
people look at in terms of the advantage. The confusion first
goes to a state like Arizona that has almost all HMO care.
What we saw in Arizona was the diminution in terms of bids
of about 30 to 40 percent in a period of four or 5 years. Then
you get into the question--and I'll just continue using
examples--then you get into the question of the number of plans
there with the different benefit structures, with the different
payment structures and the different billings process that
makes it extremely confusing patient to patient to patient.
We have one person that is an employee of the association
that spends half her time trying to work with her member
associations, with member facilities, going through and just
working the billing process.
The second thing we find is that when you go into an area
that may have excess capacity--I'll use the Bay Area, Kaiser,
and if they go into a facility in Hayward that has six or seven
beds open all of a sudden they're going to contract to put
people into those beds at probably $50 to $100 less than the
basic fee-for-service rate.
Why? Because you're making--if you compare it to nothing,
you're getting something. Now the question then is can you get
the staff to take care of that in the way necessary for those
folks.
The third thing that I indicated in the testimony that we
think is pretty unfair is the fact they have no 3-day hospital
stay rule. People could go back and forth between facility and
the hospital on a 1-day pattern or if you have a dual diagnosis
where someone had a hip fracture, it was there for a while,
they've used up their hundred days, they have diabetes and they
have to get--again for the next--second hundred days, they have
to go back to the hospital for 3 days, which is stupid, just
stupid.
So, we find those kind of patterns, and as we start looking
into it more and more and more we think that there will
probably be some recommendations coming from us as to how to
improve the system with us.
Chairman STARK. Thank you. Mr. Brezenoff ?
Mr. BREZENOFF. I strongly endorse and support the comments
that have just been made. I would only add that it is clear
that we get less money from the Medicare Advantage plans than
we do for fee-for-service. The obvious question is what's
happening for that richer premium that the Medicare Advantage
organizations are getting. Do we see it in the improved care or
improved access?
The best case answer is we don't know and the worse case
answer is that it's reflected more in the bottom lines of these
organizations. In New York state it is very clear to us that
the Advantage plans have much fatter bottom lines
disproportionally because of what they get from the Medicare
Advantage premiums, and it's not translated into reimbursement
for hard pressed teaching hospitals, and it is not clear that
it's turned into improved access or benefits for the covered
lives.
Chairman STARK. Ms. Chesny.
Ms. CHESNY. Our experiences at the home health benefit end
are Medicare Advantage is not the same benefits as a Medicare
fee-for-service patient has. It's administered under the
Medicare Advantage plan as a per visit benefit instead of a per
episode benefit. Therefore the utilization responsibility often
falls either to the managed care organization on each separate
encounter under home health or what happens is the patient is
subjected to copayments that can be as high as 50 percent for
an out of network provider, and they ration their own care.
So, it's a complement of the benefit being changed--we also
see prior authorization being a significant impact on medical
necessity. The doctor is taken out of the picture. The nurse
and the physical therapist's judgment is taken out of the
picture. It's really administered by the dollars in the managed
care organization. So, we see a significantly different
Medicare benefit under Medicare Advantage.
Chairman STARK. Dr. Walsh.
Dr. WALSH. I think it's all been said. First, I don't have
any aggregate data here to speak for the entire organization,
but speaking for my hospital it is a very different benefit.
Patients when they sign up have the notion--and I don't
know if it's misrepresentation or not but they have the same
Medicare benefits, so that after an acute care stay for an
accident that they didn't plan and therefore had not
anticipated, if they are told that we don't cover inpatient
rehab for, in this case it was pulmonary rehab, and I was
surprised that their case manager knew that because I didn't
think it was pulmonary rehab; they had no intrinsic lung
disease; they had a lot of medical things and couldn't get out
of bed. That was a surprise.
So, I think in terms of the confusion for the beneficiary
about what their benefit now is--is terribly important.
Secondly I think that the plan's attempt to negotiate a rate
that wouldn't meet the costs is going to create other access
problems.
Chairman STARK. Thank you all. Mr. Camp.
Mr. CAMP. Well, thank you, Mr. Chairman. Mr. Umbdenstock, I
know some of your members have Medicare Advantage plans. Is
there a value in those plans with coordinating care and other
benefits that come under Medicare Advantage.
Mr. UMBDENSTOCK. Pardon me, Mr. Camp. I think the key
question is what is the benefit of the extra payment that goes
to the plans and how is it being used. If it's being used to
highly coordinate care to the benefit of the patient for a true
clinical integration of services and at the same time achieving
financial results, that's a very good thing for everybody in
terms of stretching those dollars.
So, I think the question that we'd all want to explore is
exactly what models work best, what are the best practices in
care coordination and how can we see that all the plans employ
those for everybody's benefit.
Mr. CAMP. Thank you very much. Ms. Chesny, why are the
margins for home health services different in freestanding home
health agencies than hospital or skilled nursing facility-based
agencies? I know you mentioned that MedPAC's financial analysis
was at best incomplete because of the difference there. Can you
talk about that a little bit?
*Ms. Chesney. I believe that home health agencies that are
affiliated with hospitals and skilled nursing facilities tend
to take care of patients that are higher in costs, more
resource intensive and carry just an overall cost burden. They
tend to be located in more geographically disbursed areas, and
therefore their cost structure is much higher.
Our own agency, we've tried to be as efficient as we
possibly can and we still look at a 2.8 percent margin in home
health and that's an improvement for us. We were below zero 3
years ago, prior to tele-health implementation.
Mr. CAMP. I know you and I have obviously worked together
on the tele-health issue. I know for example in rural home
health agencies the transportation costs can be significant,
particularly covering an area as large as 11 counties in the
state of Michigan and other areas. Can you talk about that a
little bit and how that may have changed in recent weeks?
Ms. CHESNY. I can tell you that we reimburse the IRS
allowable mileage to our staff. It's a quality of life issue
for our staff. We ask them to drive numerous miles on a daily
basis. We average 22 miles per patient visit, and that is after
we've improved our productivity with the augmentation of tele-
health and technology for our staff. We used to be close to 30
miles a visit for most of our patient care.
So at 48-and-a-half cents IRS and then we now have gas
that's sitting at $4 a gallon. I don't think that allowable is
going to quite sit at the same place and so our costs will only
rise again.
Mr. CAMP. All right, thank you.
Mr. Kahn, many providers in the LTCH community have called
for an implementation of a criteria-based assessment. I don't
know if you were here for the testimony previously, there was
some discussion of that then. Can you talk about what kind of
patient is best served by an LTCH and how that might differ
from the care offered in an inpatient rehab hospital or a
skilled nursing facility?
Mr. KAHN. Most of the patients in long-term care hospitals
are on ventilators. I've been to a number of these institutions
and the LTCHs have the kind of staff, the kind of knowledge
about these patients, particularly if they're going to be on
ventilators for a lengthy period of time that well serves the
very complex cases, particularly as I said, those cases that
will be on ventilators for a long period of time.
So, we feel there is a difference between the level of care
there and other institutions. It warrants better criteria. It
warrants the kind of system that the legislation that's been
proposed envisions and the kind of arbitrariness of the CMS
policy is not the kind of backstop you need in terms of moving
this type of benefit to a point where we get the right patient
to the right place.
I think the 25 percent rule is really wrongheaded as a way
to get us there.
Mr. CAMP. Ms. Chesny, there was a discussion about case mix
creep and you said that obviously some of the patients are on
average older now than they used to be, but isn't it also
correct that your pattern of care is physician ordered?
Ms. CHESNY. Yes, all of our services are required to be
ordered by a physician. What we've seen, not only is it that
our patients are older and more frail. As the payment changes
have gone in place, for instance the inpatient rehab
facilities, our orthopedic patients volume has increased
significantly. There is a higher case mix weight with that. We
went from having orthopedic being like the best, highest volume
patient we have to now they're in a close contest for the
second place. Right now, this year it's third place.
Cardiac patients, cancer patients and orthopedic patients
are the patients we're seeing most in home health. Those are
all very sick patients that we're caring for, so it's a
different population.
As we were preparing the testimony, I have to tell you, I
said to the National Association for Home Care staff, this
system was designed in the '90s and the patient we are seeing
today is not your father's Oldsmobile. It's a different patient
that we are seeing from 1997 when the Prospective Payment
System was designed. It is, I believe, a much sicker patient
who requires a much more intense service, and the system isn't
being abused.
We averaged 52 days to 45 days for the average patient on
our Medicare home health episode. We're not seeing them for
extended periods of time. We're teaching them to take care of
themselves and we're rehabilitating them so that they can
become as productive as they possibly can in their activities
of daily living.
Mr. CAMP. Thank you very much, Mr. Chairman. Thank you all
for your testimony. It was very helpful and I sure appreciate
it. Thank you.
Chairman STARK. Again, I would invite all of you to
elaborate some more to help us in the next month, 6 weeks, 2
months as we have to see if we can cobble together some
legislation that will deal with all of these issues. It's going
to be a busy summer for us. We appreciate your help.
I do appreciate you taking the time and the patience again
of waiting for us. I'm sorry that we ran so late this
afternoon, but thank you all very much.
Hearing is adjourned.
[Whereupon, at 4:54 p.m., the hearing was adjourned.]
[The submissions for the record follows:]
Statement of American Association of Homes and Services for the Aging
The American Association of Homes and Services for the Aging
(AAHSA) appreciates this opportunity to submit a statement for the
record of the House Ways and Means Health Subcommittee's hearing on
Medicare payments to health care providers, including nursing homes and
home health agencies.
AAHSA members serve over one million people every day through
mission-driven, not-for-profit organizations. Seventy percent of our
members are faith-based. Our members offer the continuum of aging
services: home and community based programs, adult day programs,
continuing care retirement communities, nursing homes, assisted living,
and senior housing. AAHSA's vision is for all Americans to receive the
care they need, when they need it, in a place they call home.
President Bush's budget proposal for fiscal year 2008 called for a
freeze on Medicare reimbursement to nursing homes and home health care
providers. We urge the subcommittee to reject this proposal, which
would penalize the very health care providers who are making the
greatest effort to ensure high quality care for frail older people.
CMS itself has projected that the cost of the items and services
that skilled nursing facilities and home health agencies must buy will
increase by 3.3% and 2.9% respectively over the next year. Since long-
term care is a labor-intensive service, failure to provide the payment
update CMS has proposed will have severe implications for providers'
ability to recruit and retain the staff essential to meeting Medicare
beneficiaries' needs.
Skilled nursing facilities--the not-for-profit difference
Approximately 70 percent of payments nursing homes receive come
from the Medicare and Medicaid programs. Very few nursing home
residents currently have private insurance to cover the cost of their
care. This heavy reliance on these two programs makes their payment
policies even more critical to nursing facility operations than they
are for health care providers that have more varied sources of payment.
The average non-profit home cares for about 10-20 Medicare patients
each day. The proposed cuts translate into the loss of $100,000-
$200,000 annually for the average home and much more for those that
specialize in Medicare's high need patients. There just are not
sufficient ``excess'' dollars in the system to make up these losses.
Forcing nursing homes to ``economize'' even further on nursing staff
and wages--inevitable with cuts of this magnitude since nursing is 40%
of total costs--would be bad for Medicare and bad for patients.
Adequate Medicare reimbursement makes a major difference to nursing
homes' ability to recruit and retain staff, the single greatest
determinant of the quality of care facilities are able to provide.
According to reports the Medicare Payment Advisory Commission has
submitted to Congress for the last two years, not-for-profit nursing
facilities spend substantially more on nursing staff than for-profits
and therefore have low to zero profit margins on the Medicare payments
they receive. For 2005, MedPAC found that for-profit nursing facilities
achieved margins of fifteen percent on the Medicare payments they
received, while not-for-profits' margins were below five percent.
Denial of a payment update to facilities that already are
struggling to break even on the services they provide to Medicare
beneficiaries would run directly counter to the many initiatives we are
pursuing to raise nursing home quality. Facilities that are achieving
high margins through skimpier staffing would be hurt far less by the
denial of a payment update than facilities that have committed maximum
resources to providing quality care to frail older people.
Furthermore, the proposal to deny nursing facilities a payment
update is a false economy. A ten year study, conducted by HHS at the
request of Congress, on nurse staffing in nursing homes found that
homes with less than optimal nurse staffing had significantly more
avoidable hospitalizations than those with appropriate nurse staffing
(USDHHS. Report to Congress: The Appropriateness of Minimum Nurse
Staffing in Nursing Homes, 2002). The fewer the nurses, the higher the
rates of avoidable hospitalizations. Every avoidable hospitalization
costs Medicare an average of $7,600. An increase of just 13 avoidable
hospitalizations per skilled nursing facility would wipe out the $1.5
billion in Medicare ``savings'' from cutting SNF rates.
Because payment policies are so critically tied to adequate
staffing, we recommend that the subcommittee adopt a proposal that was
introduced in the last Congress by Rep. Marcy Kaptur to require nursing
facilities to make itemized reports to the Centers for Medicare and
Medicaid Services (CMS) of the amounts they spend annually on staffing.
This requirement, contained in H.R. 1166, would be a promising first
step toward better aligning the Medicare program's payment incentives
with the quality of care provided in nursing facilities.
Medicare's Perverse Payment Incentives for Skilled Nursing Care
The subcommittee also needs to revisit the deeply flawed final rule
CMS issued in 2005 to ``refine'' the skilled nursing facility
prospective payment system. The system is based on Resource Utilization
Groups (RUGs) that still do not accurately determine acuity of need and
responsibly calculate the cost. This is particularly true for medically
complex patients who generally require not only extensive nursing care
but also significant amounts of medications, supplies, tests,
respiratory care, and other so-called ``non-therapy ancillaries.''
Medicare reimburses skilled nursing facilities for many very expensive
patients at considerably lower rates than Medicare pays for patients
whose care costs much less. The Inspector General, MedPAC, and the GAO
have all reported on these inaccuracies.
Specifically, the revised RUG system poses the following problems
for nursing homes and their residents:
Quality of care
The system creates strong financial incentives for
nursing facilities to find patients who qualify for the nine
new RUG groups created by the 2005 rule.
To qualify for the nine new (higher) payment
groups, patients must be assigned to intensive physical therapy
and to ``Extensive Services.'' The ``Extensive Services''
designation requires that the patient have an activities of
daily living score greater than 7 and have had intravenous
medications, ventilator or respirator care, a tracheotomy or
suctioning within the last fourteen days, or intravenous
feeding within the last seven days, even if these treatments
were given during hospital stays.
There is intense financial pressure on facilities
to ``find'' such patients, because otherwise facilities may
have substantial financial losses in their Medicare
reimbursement.
The availability of patients qualifying for the new
RUG categories depends heavily on local hospital practices,
particularly as to how frequently intravenous medication
(rather than oral) is ordered. Hospitals seeking to find a
skilled nursing facility for patients who are being discharged
will soon learn that Medicare payment rules favor patients who
had an IV in the hospital. Practice patterns are likely to
shift in ways that have more to do with perverse payments than
with good clinical care.
There is no evidence that revised system improves payment
accuracy; in fact, accuracy may actually be reduced.
CMS cited only one piece of scientific evidence in
the final rule in an attempt to justify the nine new RUGs and
the contention that the new system is more accurate, as
Congress required. But this bit of ``evidence'' is not relevant
to the changes CMS actually made in the payment system and is
the result of researchers studying a completely different
issue.
Increased payments are not targeted to medically
complex patients who do not receive rehabilitation, even though
their care can be very costly, with heavy use of non-therapy
ancillaries.
Also, non-therapy ancillary costs continue to be
paid as if they correlated with nursing costs, which research
has repeatedly shown is not the case. CMS itself noted that the
new payment system would not account accurately for non-therapy
ancillary costs, and that the addition of nine new RUG
categories didn't solve this discrepancy. CMS attempted to
solve the problem by applying the same small increase in the
nursing index across all RUG groups, about three percent of
total revenues. But because the payment system doesn't
accurately cover non-therapy ancillaries or correlate to the
nursing index, the payment system still does not accurately
correlate costs of care with payment rates.
CMS used tiny samples of patients who classify into
the new RUG groups in doing its data analysis. For three of the
new RUG groups, payments for millions of Medicare days are
being set based on what happened to fewer than ten patients in
a small number of facilities nine to twelve years ago. Among
other problems, this use of small samples risks destroying the
accuracy of the current payment system's correlation of payment
rates to nursing and therapy staff times.
In doing its data analysis, CMS mixed apples and
oranges, using some numbers from Abt Associates and other
numbers from the Urban Institute. Each of these studies used
different databases, different analytical techniques, and
likely different trim points.
Congress should require CMS to go back to the drawing board on the
skilled nursing facility prospective payment system to ensure that it
more accurately reflects the true costs of caring for frail elders.
Home Health Care
An estimated 83% of older Americans who have long-term care needs
live in non-institutional, community-based settings. Medicare covers
the skilled nursing care, home health aide service, physical therapy,
speech-language therapy and occupational therapy in the home after a
hospital stay. These services are critical for the patient to remain
independent at home. Home health agencies reduce the risk of a re-
admission into the hospital, as well as nursing home placement.
In addition to ensuring that home health agencies receive the
payment update that CMS has proposed for next year, we urge Congress to
review the plans to overhaul the home health prospective payment
system. Home health agencies provided quality services despite many
years with no payment updates until 2006. In 2008 most agencies would
experience a 2.75% reduction annually over three years in the Medicare
base payment rate under the revised payment system. Twenty percent of
all home health agencies already are operating in the red. This
reduction in reimbursement rates could reduce the availability of vital
home health services for seniors and the disabled.
Home health care providers need sufficient funding to recruit and
retain quality staff, invest in telehealth technology and meet
escalating transportation costs. Eliminating the 5% rural add-on has
already had a negative impact on rural home health agencies. These
agencies are estimated to experience a decrease in their average case
mix from 1.583 to 1.1417. Twenty-three percent of older Americans live
in rural areas, and we need to have these services available for them.
CMS also predicts that home health agencies in the South would
experience a 1.84% decrease in 2008 under the new payment system. CMS
is proposing a $2,300.60 national average base rate for 2008, down from
this year's $2,355.96 for 2007 episodes. But even after a 2.9%
inflation update worth more than $400 million in 2008, these changes
would add up to $7 billion in lost Medicare revenues over five years.
We appreciate that the proposal would allow severity-adjusted
amounts of up to $367 per episode for non-routine medical supplies, add
nearly 60% of the Lower Utilization Payment Adjustment (LUPA) episodes
to cover admission costs and eliminate the episode payment adjustment
for a significant change in condition (SCIC) and for prior hospital
stays. We also appreciate the guidance offered by CMS in changing to
the new and more complicated case mix process.
State Medicaid programs are struggling to meet the increasing
demand for home health services for older adults and the disabled. The
budget proposes legislative changes in Medicaid that would reduce
Federal Medicaid funding by $25.7 billion over the next five years, of
which $20.9 billion would be achieved by shifting costs to the states.
The cost shifts include a reduction of the Federal matching rates for
all administrative activities and for targeted case management
services. Medicaid and Medicare cuts in home health services are
reducing our ability to meet the goals of the New Freedom Initiative,
the Money Follows the Person programs from the Deficit Reduction Act,
as well as the vision of the future of aging in America that was
announced at the White House Conference on Aging in 2005. We look
forward to working with your committee and CMS to assure that older
Americans and people with disabilities can obtain quality home health
services, so they can remain healthy and independent in their own
homes.
Medicare Therapy Caps
One Medicare payment policy that must be addressed this year is the
annual cap on coverage of outpatient physical, occupational and speech
therapy. These caps are enormously counterproductive to quality care
and efforts to keep Medicare beneficiaries living as independently as
possible.
Therapy needs have increased as the population ages and people live
longer. Limiting the therapy that one can receive in a particular year
often hinders an individual's ability to regain physical strength and
daily living skills that are required to live independently. In
addition, an individual may exhaust his or her permitted therapy early
in the year and have a new need for therapy later in the year--as a
result of a new medical setback (surgery, injury from a fall, heart
attack, etc.)
In the ten years since the therapy caps were enacted under the
Balanced Budget Act of 1997, Congress has allowed them to be fully
effective for only a few months. Congress itself has recognized the
danger of limiting essential therapies for beneficiaries with serious
injuries and health conditions. While the Congressional Budget Office
scores repeal of the therapy caps as being costly to the Medicare
program, this analysis does not take into account the hidden costs that
may result from limiting essential therapy services. If a Medicare
beneficiary fails to regain full functioning and suffers a serious fall
or otherwise comes to need higher levels of care, the potential cost to
the Medicare program could well exceed whatever savings are achieved
through the therapy caps.
We recognize the need to ensure that therapy services, like other
forms of health care, are only covered by Medicare to the extent that
they are medically necessary. CMS for several years has pursued a
Medicare integrity initiative under which waste, fraud and abuse in the
Medicare program have been successfully prosecuted and inappropriate
payments recovered. According to CMS, this initiative has resulted in
the recovery of many billions of dollars over the years in which it has
been in effect. Applied to therapy services, the integrity initiative
should be more than sufficient to detect, prosecute and prevent any
improper use of the benefit.
We therefore urge Congress to enact the Medicare Access to
Rehabilitation Services Act of 2007, H.R. 748, which would repeal the
Medicare outpatient rehabilitation therapy caps. This legislation would
ensure that beneficiaries are able to obtain therapy services for which
they have a medical need in the setting that is most appropriate for
them.
Need to examine entire long-term care funding system
We recognize that today's hearing concerns the appropriateness of
Medicare reimbursement to health care providers, and that a different
House committee has jurisdiction over the Medicaid program. However, in
the real world of long-term care, the payment policies of both programs
are crucial to facilities and agencies that serve vulnerable elders.
For the immediate future, we urge this subcommittee to act on the
proposal contained in Rep. Kaptur's bill from the last Congress that
would require CMS to analyze and report to Congress on all of the
issues affecting nursing facility costs and funding, including the
adequacy of Medicaid funding now and in the future to pay for the
quality of care mandated by state and Federal law and regulation. In
the longer term, Congress must reevaluate how to pay for long-term care
services. AAHSA has developed a financing plan this is both socially
and fiscally responsible, and we would be happy to work with the
committee on this issue.
Conclusion
The denial of a payment update to skilled nursing facilities and
home health care providers would impose a severe hardship, especially
in the not-for-profit sector, making it extremely difficult for
facilities to meet the costs of staffing and other elements of high-
quality care. Data from CMS and MedPAC themselves indicate the need for
a payment update in the next fiscal year, and Congress must allow the
update for which current law provides.
Striving to provide the highest quality of care, not-for-profit
nursing facilities and home care agencies are spending every dollar of
reimbursement they receive from Medicare on staffing and other
essential components of quality. The denial of a payment update would
be a heavy blow to these providers, their staff, and the vulnerable old
people they serve.
Instead of taking the easy route of across-the-board payment cuts,
we urge your committee to thoughtfully evaluate the skilled nursing and
home health payment systems and redirect their incentives toward
encouraging continuous improvement in the quality of care Medicare
beneficiaries receive. We look forward to working with the committee in
this effort.
Statement of Keith G. Myers
The LHC Group appreciates the opportunity to provide testimony on
behalf of its patients and caregivers concerning payment systems for
fee-for-service providers. The LHC Group is a provider of post-acute
health care services primarily in rural markets in the southern United
States. We provide home-based services through our home nursing
agencies and hospices and facility-based services through our long-term
acute care hospitals and rehabilitation facilities. These services are
provided by a trained staff of over 3600 nurses, physicians,
therapists, and aides throughout our locations in Texas, Louisiana,
Mississippi, Arkansas, Alabama, West Virginia, Kentucky, Florida,
Tennessee, and Georgia. We share Medicare's mission of providing care
in the least restrictive, most cost-effective, and most appropriate
environment possible.
The ability to have home health in rural areas provides Mother
the luxury to stay at her home and get excellent care. Home
health has made her life easier. It has been beneficial to me
and her family. We know she is in good hands. They are all so
caring and they are always available. For a person Mother's
age, staying in her familiar surroundings helps her mentally,
physically and spiritually. If these services are cut, or the
reimbursement is not adequate for services to continue to
assist in providing the nurses to care for Mother, she would
have to go to a nursing home. I know she would not last two
weeks. It is cheaper for us to have her at home than in a
facility. I feel the secret to longevity is the ability to
receive home care.--M.W., Mississippi
I. OVERVIEW
Each day, home health agencies that provide essential clinical and
supportive care services to Medicare beneficiaries in America's rural
areas stretch limited resources far and wide to meet the unique needs
of the patients they serve. Historically, Congress and the Centers for
Medicare and Medicaid Services (CMS) have asked rural home health
agencies to do more with less, a demand the rural home health provider
community has largely met. Today, providers who serve rural
beneficiaries continue to face new challenges that that they cannot
meet alone. They need help from Congress.
In April, CMS issued a proposed rule detailing a far-reaching
restructuring of the Medicare home health prospective payment system.
If finalized in its current form, the rule will threaten the ability of
rural home health agencies--already faced with higher costs and lower
reimbursements than urban agencies--to continue to provide services to
rural residents.
Historically, Congress sought to mitigate both the financial
pressures on rural home health agencies and the related access barriers
encountered by rural residents through the creation of a special
payment adjustment, or ``add-on,'' to the prospective payment system's
base payment rates. Congress authorized the payment adjustment for home
health services delivered in rural areas during most of the period from
April 2001 through December 2006, and the add-on greatly assisted
providers' ability to meet rural resource needs that are different, and
more costly, than those in urban areas. However, the rural add-on
expired on December 31, 2006 and has not yet been reauthorized.
In this testimony, we illustrate the urgent need for
reauthorization of the rural add-on. We detail the economic and
clinical access challenges that the proposed rule imposes on health
care in rural America, highlighting the adverse impact of the proposed
rule on rural beneficiaries and the home health agencies that serve
them. We also discuss the policy rationale behind the rural add-on as
well as its bipartisan history, and we conclude with a call for
Congress to reauthorize the rural add-on and make it permanent.
II. RESTATING THE CASE FOR THE RURAL ADD-ON
A primary reason that rural home health agencies require the rural
add-on payment is to help cover their operating costs, which are higher
on average than urban agencies' costs. These higher costs result from a
combination of factors, including the increased acuity of patients in
rural agencies as well as other built-in additional costs of providing
home health services in a rural setting--costs that urban providers do
not carry.
A. More Complex Conditions
The service mix for home health beneficiaries in rural areas is
considerably different than that in urban areas. Hospital care in rural
areas tends to be focused on short-term, acute primary care with
limited access to tertiary care centers and the specialty services they
provide. Post-acute care providers in rural areas tend to treat a
higher proportion of chronically ill patients than their urban
counterparts. This basic difference in patient mix results in part from
the different relative balances of provider types in rural and urban
areas, and in part from the fact that rural Americans tend to be
disproportionately older and have more chronic health problems than
urban Americans.
Providing care to these elderly patients with multiple health
conditions can be more time-intensive than serving other patients. This
is illustrated by one home health nurse's discussion of treatment for
an elderly patient with multiple co-morbidities who lives with his
elderly wife, who also faces several health conditions:
Home health nurses are required weekly to assess and literally
be the ``eyes'' for the physician and, hence, to [implement] a
rapidly changing treatment plan for his multiple diagnoses. To
transport the patient is an extremely taxing and un-safe
situation. The patient and his wife have no means for
transportation, no local caregivers, and no economic resources.
The physician agrees that the most vital part for safety of
this patient and his wife is totally dependent on the
assistance of the home health nurses.--Anonymous, Louisiana
Beyond age and chronic illness, another reason for increased acuity
among rural agencies' patients is the homebound status of many of these
rural patients. Rural home health agencies frequently function as the
primary caregivers for homebound beneficiaries, who have minimal access
to transportation. This situation results in higher costs per patient
and per visit, since homebound patients require more resources than
patients who have access to other providers. One home health nurse
encountered this situation when treating an elderly patient who lives
alone and who was admitted to home care following a month-long
hospitalization for a serious and extended illness. In this nurse's
words:
The patient requires daily dressing changes, which she was
unable to perform herself. She has no local family members but
relies on neighbors and friends for transportation to receive
medical care. However, many of her rural neighbors are also
senior citizens and are limited in their ability to assist her.
In the patient's eyes, her situation ``would [have been]
devastating had it not been for home care services.''-- A.S.,
Alabama
Another home health nurse discovered the increased resource needs
of homebound, high acuity patients when caring for a man with multiple
chronic illnesses who had recently had a new tracheostomy and feeding
tube put in place. This nurse described the homebound man's situation
as follows:
The wife, who has dementia, is unable to provide or participate
in the care of her husband. This patient requires daily visits
from the home health nurse. In addition to daily visits made by
the skilled nurse, their case manager consistently receives
phone calls to coordinate care. The closest caregiver is the
patient's granddaughter who has to travel a 100-mile round trip
to their home. The couple has no means of transportation, and
it is very taxing and risky for the patient to leave his home.
The home health nurse is the primary caregiver to this couple.
If this patient did not receive home health services he would
have no access to health care and would have to be
institutionalized to receive care.--Anonymous, Louisiana
As the examples above demonstrate, elderly rural beneficiaries
often face multiple health conditions that require near-constant care
that their families are unable to provide. In addition, these patients
are frequently unable to leave their homes to receive care either
because they lack transportation or because their health conditions
make transportation unsafe.
Many rural agencies also report an increase in more complex
patients because of recent CMS restrictions on admissions to other
post-acute care providers. In particular, the recent tightening of
admission criteria for inpatient rehabilitation facilities and
inpatient long-term acute care hospitals has resulted in more patients
receiving treatment in the home setting.
These facts in combination result in a higher acuity patient mix
for rural than for urban home health agencies, and treating these
patients, in turn, requires more costly resources in terms of staffing,
medications, and other treatments. While these patients desperately
need care, the many financial strains on rural agencies may ultimately
force some agencies to turn away these resource-needy homebound
beneficiaries because of resource limitations.
B. Special Structural Challenges
As demonstrated above, rural home health agencies experience some
additional costs because of their patient mix, which itself is a result
of the structure of the broader health care marketplace and of regional
behavior trends in rural areas. Other additional costs of rural home
health agencies depend less on the particular service requirements of
the agencies' patient populations and more on the structural issues
raised by the provision of home health services in rural areas. These
structural considerations, in combination with more complex patient
conditions, further demonstrate the need for the rural add-on.
1. Greater Driving Distances
Home health agencies in particular experience significantly higher
costs in providing care to rural beneficiaries because the services are
provided in the patients' homes and not in an institutional setting.
Rural beneficiaries are scattered throughout rural areas and not
congregated in cities like their urban counterparts. This results in
increased personnel costs and decreased efficiency due to the longer
drive times to reach rural residents. Compounding these extra costs are
the increases in fuel prices and the additional visits necessary to
ensure that rural patients without access to phone service comply with
medication adjustments (which can be frequent for some high-acuity
patients).
Although caregivers try to conserve costs by planning efficient
driving routes, patient care needs often force them to change their
plans. These obstacles to efficiency are detailed in one home health
nurse's description of an ordinary day in rural home health service:
Due to multiple circumstances such as the high price of gas,
and the distance from patient to patient, I have to
strategically plan my geographical route for the day, to ensure
proper patient care and timing of my visits. Unfortunately,
there are multiple times where this plan does not unfold as
planned. Numerous times I receive calls from my office, which
changes my routine. There are patients that must be seen ASAP
to avoid possible emergency room/hospital admission. When this
does happen, I am forced to drive great distances, sometimes
just to see a single patient. Once I get there, I have to take
into consideration the multiple variables that I will be faced
with to complete this extra visit. These include performing the
initial assessment on the patient; after this assessment, my
work has just begun. I am responsible for notifying the doctor
of any changes in the patient's condition. At this point, I am
responsible for implementing and executing any new orders from
the doctor, which may include, but are not limited to,
contacting the pharmacy for any medication changes, setting up
lab work, x-rays, or any additional test. Any changes to the
plan of care at this point must be reiterated through teaching
to the patient/caregiver along with possible transportation
issues. At times, this can be a daunting task due to the lack
of appropriate resources in rural communities, along with the
knowledge deficits of various patients and caregivers.--
Anonymous, Louisiana
Other home health nurses have overcome unique obstacles to reach
rural patients. One such nurse writes that she has ``waded creeks,
climbed over broken porches, and battled many a dog. Many of our aides
have had to go to a well or a branch [office] to draw water and then
heat it on the stove (or a hot plate) before they are able to bathe
their patients.''--M.A., Kentucky. Another nurse recalls ``[being]
attacked while riding on a rural road because [the driver] knew I was a
nurse and was going to try to rob me,'' ``having to run from dogs,''
and ``driv[ing] on gravel roads and get[ting] stuck in the mud due to
bad roads.''--C.J., Mississippi. Yet another nurse often visited a
patient who lived in a rural area across a river that, because it was
unpredictably passable by vehicle, had to be reached ``by a swinging
bridge that spanned the river. After reaching the end [of the bridge],
the nurse would then have to walk on a narrow footpath that followed
the riverbank, through the woods to the patient's home, toting supplies
and equipment.''--R.B., Arkansas
2. Smaller Agency Size
Rural agencies are often smaller than agencies in urban areas.
Simple economics dictates that small agencies will have higher costs
relative to larger organizations. Smaller agencies have fewer patients
and fewer visits over which all the agencies' fixed costs of service
provision--including costs of meeting regulatory requirements--can be
spread. This results in higher overall costs per patient, per visit.
Smaller agencies also are more likely than larger agencies to be faced
with a homogeneous case mix, as they will have lower patient volumes
than their larger urban counterparts. In such a situation, there will
not always be enough even slightly profitable cases to counterbalance
the high-cost, resource-demanding cases.
This problem is exacerbated by the fact (noted above) that rural
agencies already serve a higher acuity patient population. Although the
Medicare reimbursement system attempts to account for these high-cost
patients through additional outlier payments, these payments are too
low to cover agencies' actual service costs.
3. Scarcity of Skilled Professionals
Many home health agencies have difficulty getting certain health
care professionals to service beneficiaries in rural areas. Some rural
agencies have reported frequent use of nurses instead of therapists to
provide rehabilitative services because of a lack of therapists willing
and able to provide services in rural areas.\1\ Unfortunately, when an
agency substitutes skilled nursing restorative services for
rehabilitative therapy services, it does not qualify for the higher
therapy rates allowed under the home health prospective payment system.
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\1\ National Association for Home Care & Hospice (NAHC), ``Maintain
the Add-on for Home Health Services in Rural Areas'' (hereinafter
``Maintain the Add-on'') (2004); NAHC, ``Preserve Access to Rural Home
Health Services'' (hereinafter ``Preserve Access'') (April 2007),
available at http://www.congressweb.com/nahc/docfiles/
RuralTalkPts07.pdf.
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III. DOING MORE WITH LESS IN RURAL AMERICA
To address these challenges, some home health agencies in rural
areas have developed alternative operating models to reduce costs. They
have been forced to do more with less.
Many agencies serving remote rural areas have established branch
offices, or ``drop sites,'' to minimize personnel drive times and to
provide a local repository for supplies and records. While these types
of remote locations do increase personnel efficiencies, any savings are
often offset by increases in agency overhead costs for rent, utilities,
and other expenses associated with operating a remote office. And, as
noted above, these increased overhead costs are spread over a smaller
number of patients, which intensifies the impact on the agency's
finances.
Other agencies have sought to maximize personnel productivity by
compensating their clinical staff on a per visit basis instead of a
monthly or hourly basis. This method of compensation causes clinical
staff to travel more efficiently between patient visits. While
compensating on a per visit basis may help minimize the costs of
providing care to home health providers, the caregivers themselves must
incur the added cost of travel. As one caregiver noted, ``when it takes
an hour or more to just drive from one patient to another, my
productivity is obviously limited. Add to that the wear and tear on my
car and you see that I get less in my paycheck than my urban
counterpart.''--A.C., Florida. Per visit compensation, then, places
agencies at a competitive disadvantage, often resulting in retention
problems.
To address the scarcity of skilled professionals, most home health
agencies are forced to compensate these professionals at higher rates
than their urban or hospital-based counterparts. While this issue
affects almost every professional discipline, the most commonly
affected professionals are physical therapists, speech therapists, and
medical social workers. The Medicare program fails to recognize this
incremental increase in the program's area wage adjustments, yet the
increase remains a significant extra cost of providing home health
services to rural beneficiaries that urban providers do not bear.
Additional discussion of regional wage discrimination follows below.
IV. INACCURACY OF WAGE-BASED REIMBURSEMENTS
In addition to facing higher costs than urban agencies, rural home
health agencies receive Medicare reimbursements that do not adequately
account for their labor costs, a problem the proposed rule exacerbates.
A. Lower Reimbursement for Rural than for Urban Agencies
Inaccuracies in wage index values are the core cause of
reimbursement distress for rural home health agencies, yet there are
few opportunities for correction.
Medicare rural wage indices are uniformly lower than urban wage
indices, a reality that results in substantially lower Medicare
reimbursement to rural home health agencies for the same services,
provided to the same type of beneficiaries, as compared to urban
agencies. The national average Medicare wage index is set at 1.0.
Addendum B of the final rule for the home health agency prospective
payment system for calendar year 2007 shows rural wage indexes ranging
from 0.7215 to 1.1709 for the 50 states with an average rural wage
index of 0.8445 and a median of 0.8588.\2\ Only seven states have a
wage index over 1.0 (Alaska, California, Connecticut, Hawaii,
Massachusetts, New Hampshire and Washington).\3\
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\2\ 71 Fed. Reg. 65884, 65936 (November 9, 2006).
\3\ In 2004, CMS rebased and revised the home health market basket,
resulting in a labor-related share of 76.775 percent and a non-labor
portion of 23.225 percent. 69 Fed. Reg. 62126 (October 22, 2004). To
calculate the reimbursement due a provider for an episode of care, the
national 60-day episode rate is multiplied by the beneficiary's
applicable case mix weight. The result is then divided into a labor and
non-labor portion. The labor portion is multiplied by the applicable
wage index based on the residence of the beneficiary. The total
reimbursement due the provider for the episode is the sum of the wage-
adjusted labor portion and the non-labor portion of the case-mixed 60-
day episode amount.
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Because Medicare reimbursement is based largely on CMS' estimation
of differences in wages among geographic areas, the accuracy of
reimbursement depends on the accuracy of CMS' calculations of wage
rates. As mentioned above, rural agencies are often compelled to pay
the same wages as urban agencies for therapists, whose services are
required for the agencies not only to provide top-quality patient care,
but also to qualify for certain higher Medicare reimbursements (i.e.
for therapy visits). In addition, nursing shortages exist nationwide,
which can force rural agencies to pay nurses wages on par with urban
agencies to attract staff. CMS' failure to take into account this
equivalence in wages between rural and urban home health agencies
results in inappropriately low wage indices for rural agencies, for
which there is no remedy other than the rural add-on.
B. No Access to Reclassification Relief or to Special Rural Payment
Policies
In the hospital setting, a rural hospital with disproportionately
high labor costs can apply for reclassification of its wage index. Such
a hospital could, thus, be paid at the same wage index-based rate as an
urban hospital that had the same wage rates. Home health agencies,
however, are not eligible for reclassification. Moreover, the inequity
is increased in rural areas in which a hospital can qualify as a
critical access hospital or sole community provider--and receive higher
reimbursements--while a rural home health agency in the same community
has no access to these additional payments.
Rural home health agencies also lack access to other payment
sources created by Congress to address the numerous challenges facing
health care providers and Medicare beneficiaries in rural areas. For
example, the Rural Hospital Flexibility Program re-established cost-
based reimbursement for critical access hospitals. Small rural
hospitals are still held harmless from the effects of the hospital
outpatient prospective payment system. Physicians practicing in rural
health professional shortage areas qualify for a 10 percent Medicare
payment bonus. Rural health clinics and federally qualified health
centers receive reasonable cost-based reimbursement for providing
service to Medicare beneficiaries. None of these cost-management tools
are available to home health agencies serving rural beneficiaries.
Thus, home health agencies lack resources to correct the low wage
indices assigned to them by CMS, which does not accurately recognize
rural agencies' high labor costs.
C. Detrimental Effects of the Wage Differential
The dramatic reimbursement effect of rural wage indices is
evidenced by the financial situation in rural North Carolina, which
represents the median rural wage index:
National 60-day Episode Amount: $2,300
Labor-Related Share: $1,766 [0.76775 * $2300]
Wage Index: 0.8588 [rural North Carolina]
Wage-Adjusted Labor Portion: $1,517 [0.8588 * $1766]
Non-Labor Share: $534 [.023225 * $2300]
Total Reimbursement: $2,051 [$1,517 + $534]
This rural payment ($2,051) stands in contrast to the full payment
of $2,300, which would be available if the wage adjustment were equal
to 1.0--a difference of 10.83 percent, or $249, for the episode ($4.15
per day).
The range of the rural wage indices for the 48 states subject to a
rural wage adjustment for this same example is as low as $1,808 in
South Dakota and as high as $2,602 in Connecticut, as illustrated by
the following calculations:
South Dakota Connecticut
National 60-day Episode Amount: $2,300 $2,300
Labor-Related Share: $1,766 $1,766
Wage Index: 0.7215 1.1709
Wage-Adjusted Labor Portion: $1,274 $1,517
Non-Labor Share: $534 $534
Total Reimbursement: $1,808 $2,602
This represents a $794 difference for the same services, provided
to patients with the same conditions who reside in rural areas, and
provided by Medicare-certified home health agencies with the same case
mix. The only difference in the two scenarios is the geographic
location of the patient's residence.
D. Additional Concerns with the Wage Index System
Setting aside the concern about inaccuracies in wage index
calculations, the home health provider community has long opposed CMS'
use of the hospital wage index to establish home health wages.
Differences in the personnel pool and costs between hospitals and home
health agencies make use of the hospital index inappropriate in the
home health setting, where the institutional efficiencies used by
hospitals to spread costs are not available. Statewide rural wage
indices do not accurately represent local labor markets because
geographically disparate hospitals are treated together without regard
to their true labor costs.
For rural home health agencies, inaccuracies in wage index values
are made worse by differences in payer mix between the urban and rural
settings. Because of the substantially higher proportion of poor and
elderly individuals in rural areas, rural health care providers are
primarily dependent on Medicare and Medicaid reimbursement. The
financial stability of Medicare- and Medicaid-dependent rural agencies
is essential in ensuring access to care for low-income beneficiaries in
particular, as national benchmarking data indicate that rural home
health agencies provide twice the amount of indigent care as urban home
health agencies.\4\
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\4\ Fazzi Associates, ``BestWorks Report'' (2005, 2006).
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V. RURAL BENEFICIARIES' RELIANCE ON HOME HEALTH AGENCIES
In the midst of increased costs and reduced reimbursements, rural
home health agencies often find themselves as the primary providers of
post-acute care services for rural Medicare beneficiaries. Research has
shown that rural Medicare beneficiaries are less likely than urban
beneficiaries to use institutional post-acute services, including
skilled nursing facilities and inpatient rehabilitation facilities
\5\--a trend attributable to patient preferences and to a lack of
specialized post-acute care providers in rural areas. Additionally, it
is recognized that rural beneficiaries do not receive the same level of
physical and occupational therapy services as urban residents.\6\
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\5\ J.P. Sutton, ``Patterns of Post-acute Utilization in Rural and
Urban Communities: Home Health, Skilled Nursing, and Inpatient Medical
Rehabilitation,'' NORC Walsh Center for Rural Health Analysis (March
2005), available at http://www.norc.org/NR/rdonlyres/3329577F-87E4-
4C4A-BEBE-1D6E66B7C4DD/0/WalshCtr2005_PAcuteU.pdf.
\6\ J.P. Sutton, ``Home Health Payment Reform: Trends in the Supply
of Rural Agencies and Availability of Home-Based Skilled Services,''
NORC Walsh Center for Rural Health Analysis (March 2005), available at
www.norc.org/NR/rdonlyres/51442860-0B0F-4F45-A76B-0C3B093FBCFD/0/
WalshCtr2005_NORCMarchCX2.pdf.
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Based on a recent study of the CMS Home Health Compare data,
researchers determined that there are only minor differences in the
quality of care provided by home health agencies in urban and rural
areas. Functional improvement scores varied by less than 2 percent, and
no statistically significant differences in adverse outcomes are
apparent. This is a particularly good indication of the effectiveness
of rural home health agencies in providing care to rural beneficiaries
in light of the challenges explained above.
The effectiveness of rural home health care, in spite of the
numerous obstacles to service provision, is further attested to by Dr.
Gary Wiltz, a board certified internist and CEO/Medical Director of the
Teche Action Clinic in rural Louisiana. Dr. Wiltz writes:
Caring for patients in a rural community presents many
challenges, chief among which are lack of transportation, high
poverty, low educational attainment and lack of resources
available in an urban setting. The patients served by our
community health center are truly the sickest of the sick. They
suffer from debilitating chronic diseases and co-morbidities
impairing functional status. Many of our elderly patients
cannot independently obtain health care without assistance.
Utilization of home health services results in improved health
care outcomes for our patients. Length of hospital stays are
decreased when we can provide in-home services, the emergency
room visits are decreased when a Plan of Care can be
implemented in the home which monitors the patients' health
status preventing exacerbations requiring medical intervention,
nursing home placement is prolonged or prevented, and overall
better disease management especially as it relates to diabetes,
hypertension, and heart disease (congestive heart failure).
Rural beneficiaries' comments about their home health providers
also reveal a high degree of satisfaction with--and a strong dependence
on--this type of care. As rural beneficiaries' primary providers, home
health nurses spend extra time completing assessments, answering
patients' questions about their treatments and conditions, and forming
relationships with patients. These patients and their families often
thank their home care providers for being, among other things, ``very
thorough,'' ``[available to] help no matter the time,'' ``very helpful,
courteous, and dependable,'' ``prompt,'' ``willing to find out answers
for difficult questions,'' and ``comforting.''--Louisiana.
Beneficiaries and their families rely on their home health nurses to
meet not only their physical needs, but also their emotional, social,
and often spiritual needs, frequently coming to view their home health
nurses as ``part of the family.''--A.J., Mississippi
However, positive trends like this cannot continue if the current
proposed rule, discussed in more detail below, is fully implemented.
VI. THE PROBLEM: THE PROPOSED RULE AND ITS IMPACTS
A. Basics
The proposed rule includes sweeping structural and functional
changes to the home health prospective payment system, including:
A 2008 base payment rate of $2,300 per episode with a
negative adjustment for provider coding behavior of 2.75
percent each year for the next 3 years;
The introduction of 153 home health resource group
models based on 4 equations;
New limitations on rehabilitation therapy access,
including a three-threshold model using payment increase
trigger points of 6, 14, and 20 visits; and
Continued application of the pre-floor, pre-
reclassified hospital wage index for wage-indexing home health
payments, and an increase in the labor-related share of the
base payment from 76.775 percent to 77.082 percent.\7\
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\7\ 72 Fed. Reg. 25356 (May 4, 2007).
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B. A Disproportionate Impact on Rural Providers
CMS' analysis of the impact of the changes to the home health
prospective payment system indicates an overall negative change for
rural home health agencies of 0.5 percent and a positive change for
urban home health agencies of 1.26 percent. However, CMS data also
indicate that the impact on rural proprietary freestanding agencies
will be, approximately, a 4.87 percent reduction in reimbursement to
these rural agencies as opposed to a negative 1.64 percent impact for
their urban counterparts.\8\
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\8\ Id. at 25456-25457.
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Rural providers and industry consultants are still evaluating the
effect of the proposed changes on rural providers, but several
preliminary reviews of the impact of the proposed rule using 2006 data
indicate that the actual impact of the proposed rule on home health
reimbursement will be substantially more significant than what is
stated by CMS in its regulatory flexibility analysis. Rural wage
indices used by CMS are significantly lower than those applied to urban
providers, so the actual losses experienced by rural providers will be
still greater. Nonetheless, these initial results indicate that rural
home health agencies will experience substantially greater losses than
the 0.5 percent estimated by CMS in the proposed rule.
Additional analyses of the data and the effects of the proposed
rule are ongoing. But the clearly disproportionate impact on rural
providers--an impact exceeding CMS' own estimates--makes it imperative
that rural agencies obtain immediate help with covering their costs.
Reauthorizing the rural add-on is the single most effective means of
doing so.
VII. THE SOLUTION--REAUTHORIZATION OF THE RURAL ADD-ON
A. Background
Congress has historically used the rural add-on policy as a means
to level the reimbursement playing field for home health agencies that
treat rural beneficiaries. Three times in recent history, through the
authorization and reauthorizations of the rural add-on, Congress has
taken affirmative steps to ensure that strong, high-quality home health
care providers are available to serve rural beneficiaries:
Congress enacted a 10 percent add-on for rural home
health between April 1, 2001 and March 31, 2003 as part of the
Benefits Improvement and Protection Act of 2000 (BIPA).
The BIPA 10 percent add-on lapsed for twelve months,
but Congress enacted a 5 percent add-on for one year between
April 2004 and March 2005 in the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA).
In February 2006, Congress extended the add-on for an
additional year in the Deficit Reduction Act of 2005 (DRA).
The add-on lapsed in 2007, yet the policy rationale for it has not.
B. Legislative History Reflective of Congress' Longtime Concerns
Since 2001, Congress has been sensitive to the challenges rural
home health care providers face. The hearing records of Congressional
committees are replete with studies and detailed discussions of
discrepancies between urban and rural home health costs, net
reimbursement values, and differences in clinical care--none of which
have changed materially since the add-on was first authorized in 2001.
The Medicare Payment Advisory Commission (MedPAC) also supported the
add-on, indicating that rural agencies' travel costs are higher than
urban agencies' costs and that rural agencies face a cost disadvantage
because they have a low volume of services and cannot spread fixed
costs over a large number of episodes.\9\
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\9\ Glenn Hackbarth, ``Hearing on Rural Health Care in Medicare,''
Hearing before the Subcommittee on Health of the House Committee on
Ways and Means (June 12, 2001), available at http://
waysandmeans.house.gov/legacy.asp?file=legacy/health/107cong/6-12-01/6-
12hack.htm.
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C. Bipartisan Support
The rural add-on has garnered strong bipartisan support throughout
its authorization and reauthorizations. In 2003, 57 Senators, led by
Senators Susan Collins (R-ME) and Russ Feingold (D-WI), sent a letter
to Congressional authorizers and party leaders promoting the add-on to
ensure rural access.\10\ In 2005, Senators Collins and Feingold
introduced legislation to extend the additional payment for home health
services in rural areas. The Senators continued to identify as much as
a 12 to 15 percent difference in costs to rural home health providers
``because of the extra travel time required to cover long distances
between patients, higher transportation expenses, and other factors,''
and they recognized that without the add-on, ``agencies may be forced
to make decisions to simply not accept rural patients with greater care
needs.'' \11\ Senators Collins and Olympia Snowe (R-ME) provided
additional data in support of the add-on in a letter to the Senate
Finance Committee later that year.\12\
---------------------------------------------------------------------------
\10\ ``Collins & Feingold Lead Effort for Affordable and
Comprehensive Home Health Care: 57 Senators Support Elimination of Co-
Payments and Changes for Rural Equity'' (September 30, 2003), available
at http://collins.senate.gov/public/
continue.cfm?FuseAction=PressRoom.Press
Releases&ContentRecord_id=4F3AED3F-802A-23AD-4F7B-
A7E4DF562251&CFID=33919502&
CFTOKEN=13706486. See also Medicare Modernization and Prescription Drug
Act of 2002, H. Rep. No. 107-539(I) (2002).
\11\ ``Senators Collins and Feingold Introduce Rural Home Health
Legislation'' (February 7, 2005), available at http://
collins.senate.gov/public/continue.cfm?FuseAction=PressRoom.Press
Releases&ContentRecord_id=4F3AC8DE-802A-23AD-4F14-
4E1C0663C092&CFID=33919502&
CFTOKEN=13706486.
\12\ Letter from Sen. Olympia J. Snowe and Sen. Susan Collins to
Sen. Charles Grassley and Sen. Max Baucus (December 15, 2005),
available at http://collins.senate.gov/public/
continue.cfm?FuseAction=PressRoom.PressReleases&ContentRecord_id=B092F31
0-802A-23AD-
4581-699286022FDC&CFID=33919502&CFTOKEN=13706486.
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VIII. CALL TO ACTION: REAUTHORIZATION OF THE RURAL ADD-ON IN 2008
Rural home health agencies stand in a precarious financial
situation. With several sources of extra costs--including increased
patient acuity and structural issues associated with rural home health
care--and inadequate Medicare reimbursements, rural home health
agencies will not be able to continue current service levels without
assistance from Congress.
Over the years, rural home health agencies' margins have regularly
fallen below urban agencies' margins. A recent MedPAC analysis of 2005
cost report data indicates that freestanding rural agencies face
margins that are, on average, 2.8 percent lower than urban agencies'
margins.\13\ Moreover, approximately 20 percent of all home health
agencies had negative margins in 2005, and about 60 percent of
hospital-based and 20 percent of freestanding home health agencies lose
money providing care to Medicare beneficiaries.\14\ While it should be
noted that national average margins can be misleading because of the
wide variation in home health agency margins, rural home health
agencies have the lowest margins in every study reviewed.
---------------------------------------------------------------------------
\13\ MedPAC, ``Report to Congress'' (March 2007), 194, 195.
\14\ Id.
---------------------------------------------------------------------------
National benchmarking data from the Fazzi Associates indicate that
home health agencies have a one percent profit margin overall, when all
payers and service lines offered by agencies are considered. The
benchmark data indicate that urban home health agencies have Medicare
profit margins of 11.6 percent and that rural agencies average Medicare
margins of 10.5 percent. However, rural agencies had been receiving the
5 percent rural add-on payment during the review period, so the real
Medicare margin for rural home health agencies was 5.5 percent, or
about one-half of the margins of urban agencies.\15\
---------------------------------------------------------------------------
\15\ Fazzi Associates, ``BestWorks Report'' (2005, 2006).
---------------------------------------------------------------------------
Unsurprisingly, removal of the rural add-on would significantly
affect rural home health agencies' margins and corresponding ability to
serve rural beneficiaries. Between April 1, 2003 and March 31, 2004--
the period during which the rural add-on was not in effect--several
service areas were reduced and some agencies were forced to turn away
resource-intensive patients.\16\ Moreover, just before the most recent
expiration of the rural add-on in December 2006, a higher percentage of
rural than urban states reported service by only one home health agency
or by no home health agencies at all.\17\ Rural access thus remains a
serious problem that will only be worsened if Congress fails to
reauthorize the rural add-on.
---------------------------------------------------------------------------
\16\ NAHC, ``Maintain the Add-on,'' supra note 1; NAHC, ``Preserve
Access,'' supra note 1.
\17\ MedPAC, ``Report to Congress'' (March 2007), 190.
---------------------------------------------------------------------------
IX. REINSTATE AND MAKE PERMANENT THE 10 PERCENT ADD-ON
Because ensuring beneficiary access to medically necessary care is
one of the Medicare program's central purposes, the threat to rural
beneficiary access to home health services should be a primary concern
as Congress evaluates the health care system this year in light of CMS'
proposed changes. The advent of the substantial structural and
functional changes in the Medicare prospective payment system for home
health agencies as proposed by CMS makes it imperative that Congress
act quickly to reinstate and make permanent a 10 percent rural add-on
to avoid additional problems with access to care by rural
beneficiaries.
Importantly, policy support for the rural add-on at its inception
in 2001 and during subsequent reauthorizations remains in force today.
Concerns about the effects of inadequate reimbursements on rural access
and on small businesses, as well as proper recognition of the high
costs of rural home health agencies and the relative efficiencies of
home health care compared to institutional settings, all demand
reauthorization of the rural add-on.
The rural home health care provider community has demonstrated
remarkable resiliency in adapting to continuing changes in
reimbursement over time, but this trend cannot last indefinitely.
Essential support in the form of a reauthorized and permanent add-on
for rural home health care providers is urgently needed.
Without the help of home health, I would be in a nursing home.
I have received excellent service that has allowed me to stay
in my home, so that I may have the quality of life that is
satisfying to me. The thought of losing this service is
frightening and would be devastating to me. I plead with you
not to cut these services. Please reconsider any changes that
limit funding and availability of home care services.-- N.E.,
Arkansas
Statement of Visiting Nurse Associations of America,
Boston, Massachusetts
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to present written testimony for the Subcommittee's hearing
on ``Payments to Certain Medicare Fee-for-Service Providers.'' As
President and Chief Executive Officer of the Visiting Nurse
Associations of America (VNAA), the national membership association for
non-profit and community-based Visiting Nurse Agencies (VNAs), I speak
on behalf of our voluntary Board of Directors and the association's
membership.
At the outset, I would like to commend you and Subcommittee Members
for your leadership in engaging the health care provider community in
reforming Medicare fee-for-service policies with the goal of ensuring
that Medicare pays efficiently and appropriately for quality care. We
agree with you that Medicare payment policies should be revisited
frequently to not only protect the solvency of the Medicare Trust Fund
and ensure high quality care for beneficiaries, but also because health
care and demographics in the United States are evolving daily. The
rapid rate at which American citizens are currently accessing Medicare-
covered services will only increase as the baby boom generation
approaches retirement. VNAA believes that it is essential for national
health care policies to reflect this change in demographics by
supporting the most efficient and cost-effective forms of health care
delivery, including innovative technologies that support consumer
choice of care and independent living.
In this testimony, VNAA would like to address three different areas
of Medicare home health payment policy that we believe will help the
Subcommittee identify reforms to ensure that Medicare pays efficiently
and appropriately for quality care to beneficiaries. These areas
include: 1) CMS's newly proposed rule for PPS refinements; 2) MedPAC's
analysis involving costs and reimbursement for Medicare-covered
services; and 3) Preparing for the future by cost-effectively meetings
the health care needs of a rapidly aging society.
Briefly, I will make the case in my testimony that: 1) VNAs'
mission to serve as the safety net for the most sick and vulnerable
homebound seniors and those with disabilities is currently at risk and
would be seriously jeopardized by the Administration's proposed cuts to
Medicare home health reimbursement; 2) CMS's policies to account for
the true cost of providing home health care in 2007 is outdated and
therefore MedPAC's analysis of the adequacy of Medicare home health
reimbursement is not based on complete and current cost data; and 3)
Home health care has the ability to provide significant savings to the
Medicare program if Federal congressional and regulatory policies
recognize its cost-efficiency when compared to the costs associated
with treating like medical conditions in institutional settings.
About Visiting Nurse Agencies
For over 120 years, VNAs have shared several common goals,
including: 1) to provide the highest quality health care to the sickest
and the poorest who otherwise would not have access to the health care
they need; 2) to help people with chronic illnesses and disabilities to
stay within the comfort of their homes by maintaining their health,
strength and independence; and 3) to form local partnerships within
individual communities to improve the overall public health of those
communities.
Today, approximately 400 VNAs provide care to nearly four million
individuals each year. While continuing to embrace and fulfill their
original common goals, VNAs have evolved to provide the types of highly
skilled nursing care that only 20 years ago were rarely provided
outside a hospital, such as peritoneal dialysis and intravenous
chemotherapy. The tens of thousands of clinicians employed by VNAs are
passionate about improving the quality of life of all of their
patients, including some of the nation's sickest and poorest
individuals. Their expertise is in geriatric care, public health
measures such as mass-immunization, infusion therapy, pain management,
ventilator care, hospice care, and chronic care management for those
with diabetes, congestive heart disease, AIDS, chronic obstructive
pulmonary care and cancer. These basic medical services are
supplemented by support services that enable individuals to remain in
their homes and communities, including adult day care, Meals on Wheels,
personal care services, caregiver education, telehealth monitoring, and
nutrition management.
Medicare Home Health Prospective Payment System Refinement and Rate
Update for Calendar Year 2008
The Subcommittee's hearing is particularly timely on the issue of
provider payments given the recent publication of several proposed
regulations on such payments by the Centers for Medicare and Medicaid
Services (CMS). On May 4, the ``Medicare Home Health Prospective
Payment System Refinement and Rate Update for Calendar Year 2008
Proposed Rule'' was published in the Federal Register, 42 CFR Part 484.
This proposed rule includes the most significant refinements to the
Medicare home health prospective payment system since its
implementation in October 2000.
Very generally, it appears that the proposed redistribution of
case-mix weights by case-mix categories has incorporated many of VNAA's
suggestions to re-balance the system to more fairly reflect costs by
case-mix category. However, we are only in the early stages of our
analysis and cannot at this point offer definitive recommendations to
the Subcommittee regarding this redistribution of payments. We believe
that several of the other proposed changes are positive, including the
replacement of the ``10-therapy visit'' threshold with three threshold
benchmarks, the increase from 80 to 153 home health resource groups,
the elimination of both the ``MO175'' OASIS variable and the
``Significant Change in Condition (SCIC) Adjustment,'' and the
recognition that secondary diagnoses provide a more accurate picture of
patient condition.
VNAA is disheartened, though, that CMS inserted a budget-driven,
across-the-board 2.75% payment reduction in each of 2008, 2009, and
2010 in order to address what it believes is a provider-driven effort
to increase the average case-mix weight. CMS's estimate of the
increased case-mix weight between 2000 and 2003 assumes that home
health agencies in general had deliberatively ``upcoded'' the medical
and functional status of their patients to achieve higher
reimbursement. The estimate dismisses the very real possibility that
the demographics of the home health population had changed in the first
three years of PPS.
In our experience, the home health profession was generally so
confused by the complete overhaul of patient assessment and
reimbursement in October 2000 and into the first few years of PPS that
``upcoding'' would have been highly unlikely. In addition, VNAA has
asked CMS for a better understanding of its rationale for why it now
assumes that an increase in diagnostic coding following the publication
of CMS coding instructions is inappropriate ``upcoding'' when before
CMS had said that this particular increase in diagnostic ``upcoding''
was a result of nurses' better understanding of diagnostic coding due
to the instructions put out by CMS.
For these reasons, VNAA believes that CMS's proposed 2.75% cut in
payments in 2008-2010 is based on unreliable assumptions at best about
the increase in case-mix weight from 2000 to 2003. The harsh reality is
that VNAs in 2004 (year of most recently available data) had an average
total operating margin of negative 2.3% accounting for all payer
sources. Charity contributions to VNAs brought that average up to 3%.
Since that time, costs have only increased--not decreased--because of
the stiff competition for clinicians, gas price increases, and purchase
of telehealth systems to better manage patient caseloads by thinly
stretched clinical staffs.
Last year, the Moran Company produced data for VNAA that
demonstrated that 66% of VNA providers have total operating margins of
less than 5% and that 39% of VNA providers have negative total
operating margins. If CMS includes the combined 8.25% cut in its final
rule for PPS refinement, the vast majority of VNAs would be in serious
financial jeopardy. The real tragedy though would be the impact that
any VNA closures would have on Medicare beneficiaries' access to a
safety net home health provider in their community. Following the
implementation of the BBA'97 and the devastating Interim Payment System
(IPS), 26 VNAs were forced to close their doors. We are concerned what
any repetition of the past would have on communities nationwide.
MedPAC's Analysis of Medicare Home Health Reimbursement
The Administration's proposed rule comes on the heels of an equally
troubling set of conclusions and recommendations by the Medicare
Payment Advisory Commission (MedPAC) regarding home health payments. In
its most recent analysis, MedPAC once again concluded that home health
agencies' average costs for home health services to Medicare
beneficiaries are less than average payments, and therefore the annual
inflation updates for calendar years 2003-2008 for such services have
been viewed as unwarranted.
We believe that MedPAC's annual analyses have been grossly
misleading to the Congress for the following reasons:
1) The analyses have not included data from 1,723 home health
agencies, or 21% of total home health agencies, that are
``provider-based.'' Therefore, all costs and payments to
hospital-based and skilled nursing facility-based home health
agencies have been excluded from MedPAC's annual home health
margin analysis. Exclusion of these agencies has clearly skewed
the average home health margin upward. According to the
National Association for Home Care, the average Medicare profit
margin of the provider-based agencies in 2004 was less than
negative 5.3%. In some states, particularly rural states,
provider-based agencies represent the vast majority of existing
home health providers and exclusion of those providers' data
does not provide a meaningful assessment of beneficiaries'
access to home health care.
2) The methodology that MedPAC uses to assess home health
agencies' margins is outdated, largely because CMS's policies
for what costs are considered ``allowable'' or ``not-
allowable'' are significantly outdated. MedPAC can only include
in its margin analysis the costs that CMS considers
``allowable'' costs. Yet, the scope of primary ``allowable
costs'' has not been revisited for 10 years. For example, many
if not most home health agencies have invested substantial
resources in telehealth monitoring to more closely monitor
patients at home. The national nursing shortage has made such
investments a necessity because telehealth monitors can assist
a slim clinical staff in monitoring patients' vital signs and
any changes in medical conditions that they may consider
alarming.
Telehealth monitors assist nurses in determining which nursing
visits are immediately necessary according to the incoming patient
data, versus those visits that can be scheduled the following day(s).
Telehealth does not replace nursing visits but assists nurses in their
management of their patient caseloads, which has been vital in
compensating for an average 10% nursing staff vacancy rate during the
past few years according to VNAA member surveys.
Data from our agencies demonstrate that early intervention by the
clinicians in response to such incoming telehealth data has reduced
costly and unnecessary hospitalizations. Yet despite telehealth's
clinical value and cost-effectiveness, CMS does not consider telehealth
monitoring costs ``allowable'' for cost reporting purposes because it
has concluded that telehealth monitors cannot be considered a
replacement for nursing visits. And, because laws that govern home
health payments are structured to account only for direct visit costs,
telehealth costs therefore cannot be captured, thereby artificially
inflating actual home health agency Medicare margins.
Even with the flaws in the CMS and MedPAC approaches to assessing
margins, they concede that a significant proportion of agencies face
reimbursement challenges that in our view contribute to access problems
for Medicare beneficiaries. According to MedPAC, 20% of home health
agencies had negative Medicare margins in 2004 (most recent data
available) and at least 20% of Medicare beneficiaries had a problem
accessing home health care that year.
With such substantial evidence of financial strains on the home
care system, VNAs do not think it is wise for the Administration to
propose payment cuts or for Congress to freeze home health providers'
2008 update when beneficiaries' access to care is at risk.
Preparing for the Future by Cost-Effectively Meeting the Health Care
Needs of a Rapidly Aging Society
VNAA strongly believes that home- and community-based care must be
at the center of our health care delivery system to address the
inevitable rise in Medicare costs due to the rapid aging of the
American population. HHS Secretary Michael Leavitt underscored the
cost-effectiveness of such care during his speech to the February 2005
World Health Congress. ``Providing the care that lets people live at
home if they want is less expensive than providing nursing home care.
It frees up resources that can help other people. And obviously, many
people are happier living at home,'' stated Secretary Leavitt.
As the following CMS data illustrate, home health care has the
potential to be a huge cost saver to Medicare, Medicaid and private
insurance.
------------------------------------------------------------------------
Length
Setting Classification of Payment (2003
Stay rates)
------------------------------------------------------------------------
Inpatient Rehabilitation Case-mix group 14 $10,828.60
Facility (IRF) 804 (lower days
extremity joint
replacement
with some
functional
capabilities)
------------------------------------------------------------------------
Skilled Nursing Facility Either the very 14 $4,446.82 for
(SNF) high (RVB) or days RVB and
ultra high $6,352.60 for
(RUB) RUB
rehabilitation
group
------------------------------------------------------------------------
Long Term Care Hospital Patient group 14 $17,671.22
(LTCH) 238 days
------------------------------------------------------------------------
Home Health High/High/ 60-day $5,165.26
Moderate Group episo
de of
care
------------------------------------------------------------------------
Source: Statement by CMS, 6/6/2005, Ways and Means Health Subcommittee
To further bolster the notion that home care is a cost effective
alternative to institutional care, a June 2005 RAND study, titled
``Comparison of Medicare Spending and Outcomes for Beneficiaries with
Lower Extremity Joint Replacements,'' detailed costs and outcomes for
hip and knee replacement patients in different post-acute care
settings. The report found that total post--acute care payments for
inpatient rehabilitation facility (IRF) and skilled nursing facility
[SNF] ``were $8,023 and $3,578 respectively higher than Medicare
payments for patients who were discharged home.''
According to RAND, ``In general, the results from that model show
that in terms of Part A [Medicare] costs, episodes in an IRF or SNF are
much more costly for Medicare than for episodes of care among patients
going home.'' (06/2005 MedPAC Report to Congress)
The broader medical research community has also documented the
cost-effectiveness of home health care. A study published in the
December 2005 issue of the Annals of Internal Medicine demonstrated
significant savings when patients with similar conditions were treated
in their homes instead of hospitals. The average cost of treating
patients at home was $5,801 compared to an average cost of treating
patients in the hospital of $7,480.
In conclusion, the demand for home health care will continue to
grow as both a consumer preference during retirement years and as a
result of greater recognition of the cost-savings it produces for
payers and consumers. The kinds of highly skilled services that VNAs
and other home health agencies provide have enabled millions of
Americans to avoid hospital and nursing home stays. By preventing such
institutional care, VNAA believes that home health care is a solution
to curbing the persistent and continuous rise in national health care
costs.
Mr. Chairman and Subcommittee Members, VNAA respectfully urges you
to ensure that Medicare beneficiaries continue to have access to home
health care by supporting full market basket inflation adjustments in
2008 and in subsequent years as provided under current law and by
urging CMS to exclude its proposal to reduce Medicare home health
payments by 2.75% in each of 2008, 2009, and 2010.
Thank you again for providing this opportunity to share our
concerns and recommendations.