[Congressional Record Volume 142, Number 106 (Thursday, July 18, 1996)]
[Extensions of Remarks]
[Pages E1321-E1322]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  NEW PAYMENT SYSTEM FOR PPS EXEMPT REHABILITATION HOSPITALS AND UNITS

                                 ______
                                 

                         HON. FRANK A. LoBIONDO

                             of new jersey

                    in the house of representatives

                        Thursday, July 18, 1996

  Mr. LoBIONDO. Mr. Speaker, I introduce legislation to provide for a 
Medicare prospective payment system [PPS] for inpatient rehabilitation 
hospital and rehabilitation unit services.
  Prior to 1983, the Medicare Act paid hospitals the reasonable cost of 
treating Medicare patients. Generally, this meant that the more a 
hospital spent, the more it was paid from the Medicare Trust Fund. The 
result was a rapid rate of increase in Medicare spending for 
hospitalization. In 1983, this system was replaced with a Prospective 
Payment System under which hospitals were paid fixed rates for various 
types of diagnostic groups, commonly

[[Page E1322]]

known as DRG's. Certain providers of care were exempted from this 
system because a way to appropriately group their patients did not 
exist. Among these were rehabilitation hospitals and rehabilitation 
units in general hospitals. These continued to be reimbursed based on 
costs incurred, but subject to limits on payment per discharge. These 
limits are imposed under the Tax Equity and Fiscal Responsibility Act 
of 1982, and commonly known as TEFRA limits.
  TEFRA limits were to be a short-term expedient to reduce the rate of 
increase in hospital payments. TEFRA limits are based on Medicare 
operating cost of a hospital or unit in an assigned base year divided 
by the number of Medicare discharges in that year. This value is 
updated annually by an update factor, which is intended to reflect 
inflation. A hospital's or unit's ceiling on Medicare reimbursement is 
the TEFRA limit for a given year times the number of its Medicare 
discharges in that period, the TEFRA ceiling.
  For cost reporting periods beginning on and after October 11, 1991 
the Medicare Program reimburses a portion of a provider's cost over its 
TEFRA ceiling in an amount which is the lower of 50 percent of cost 
over the ceiling or 10 percent of the ceiling. Provision for such 
payment was made by the Omnibus Budget Reconciliation Act of 1990 [OBRA 
90]. If a provider's costs are less than its TEFRA ceiling, the 
provider is paid an incentive payment equal to the lower of 50 percent 
of the difference between its Medicare operating costs and its TEFRA 
ceiling or 5 percent of that ceiling.
  When this system was adopted, it was assumed that it would be in 
place only a short time and then be replaced with a PPS for excluded 
hospitals and units. New hospitals and units coming on line after the 
TEFRA system was in place were in a much better position than older 
facilities, simply because their more current base years included more 
contemporary wage rates and other operating costs.

  This now very old temporary system is flawed for the following 
reasons:
  Medicare pays widely varying amounts for similar services, producing 
serious inequities among competing institutions.
  New hospitals and units can establish limits based on contemporary 
wage levels and otherwise achieve much higher limits than older 
hospitals, putting them at a great advantage.
  By treating all rehabilitation discharges as having the same 
financial value, the TEFRA system provides a strong incentive to admit 
and treat short-stay, less complex cases and to avoid long-stay, more 
disabled beneficiaries. This is not a good policy for Medicare to 
continue to support.
  Because any change in services that will increase average length of 
stay or intensity of services will likely result in cost over a TEFRA 
limit, the system inhibits the development of new programs. This is 
also not a good direction and does not encourage implementation of 
current practices.
  The process for administrative adjustment of limits does not provide 
a remedy because it is not timely. HCFA does not decide cases within 
the 180-day period required by law and does not recognize many 
legitimate costs.
  The very strong incentive to develop new rehabilitation hospitals and 
units has resulted in an increase in the number of rehabilitation 
hospitals and units. PROPAC reports that in 1985 there were 545 such 
hospitals and units. In 1995 there were 1,019. Between 1990 and 1994 
Medicare payments to such facilities increased from $1.9 to $3.7 
billion. Some of this increase reflects the lack of needed service 
capacity in 1983. At the same time, many older facilities had and have 
to live with very low limits of Medicare reimbursement and were paid 
less than the cost of operation, while new facilities were being paid 
much higher cost reimbursement and bonuses as well. It is hard to 
imagine a worse system.
  The clear solution to this situation is to introduce a prospective 
payment system for rehabilitation facilities under which providers are 
paid similar amounts for similar services and payments are scaled to 
the duration and intensity of services required by patients. Such a 
system has been devised by a research team at the University of 
Pennsylvania. It is based on the functional abilities of patients 
receiving rehabilitation services.
  It is now being used by the RAND Corp., under contract with the 
Health Care Financing Administration, to design a payment system. This 
work is to be completed before the end of 1996.
  My bill would require that a PPS for rehabilitation be implemented by 
the Secretary of HHS for Medicare cost reporting years beginning on and 
after October 1, 1997. This date would allow adequate time to adopt 
regulations and administrative procedures. And my bill requires that 
this payment system is budget neutral.
  Enactment of this bill would have multiple benefits. It would benefit 
patients by removing the implied financial penalty for treating 
severely disabled patients; it would benefit providers of services by 
putting all rehabilitation facilities on a level playing field; and it 
would benefit the Medicare trust fund by eliminating the enormous 
incentive in present law to duplicate service capacity.
  I look forward to support from my colleagues in passing this 
important legislation.

                          ____________________