[Congressional Record Volume 142, Number 119 (Wednesday, September 4, 1996)]
[Extensions of Remarks]
[Pages E1510-E1511]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 INTRODUCING A BILL TO REDUCE MEDICARE PAYMENTS TO TRANSPLANT CENTERS 
                       FOR GENERAL OVERHEAD COSTS

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                      Wednesday, September 4, 1996

  Mr. STARK. Mr. Speaker, today I am introducing a bill which will save 
Medicare millions of dollars each year. This savings will not involve a 
decrease in coverage for Medicare beneficiaries. It simply allows us to 
stop paying someone else's laundry bill, and I mean that literally.
  Medicare was established to provide basic protection against the 
costs of health care while providing quality services. As organ 
transplants became a medical reality, Medicare became a full insurer 
for kidney, heart,

[[Page E1511]]

lung, and liver transplants. Hospitals must apply for certification to 
perform each type of transplant and receive Medicare reimbursement. 
There are approximately 160 hospitals across the country which hold 
such contracts.
  We seem to be under the impression that because we have approved 
these facilities, all of the items in their bills to Medicare are 
justified. But this is not the case; hospitals add on approximately 25 
percent of an imported organ's acquisition cost to cover a portion of 
administrative and general overhead costs, such as laundry, 
housekeeping services, rent, and utilities. This add-on system cost 
Medicare $22 million in 1995.
  Let me back up for a moment and put this in context. Under the 
diagnostic related group [DRG] system, Medicare pays hospitals a set 
rate for each type of injury or illness. The DRG payment covers all 
items and services provided by the hospital to the patient, and 
includes an allocation for overhead associated with each service 
rendered. Organ acquisition is covered separately from the DRG for 
organ transplants. In this case, Medicare separately reimburses 
transplant centers for the acquisition cost of each organ. It is this 
cost to which hospitals make the add-on. The problem lies particularly 
with cases in which the organ is imported from an organ procurement 
organization.
  Mr. Speaker, I do not mean to imply that hospitals have acted 
inappropriately. It is normal practice for hospitals to distribute 
their overhead to cost centers which are not covered by DRG's. Indirect 
costs are allocated across the board to all possible cost centers. 
However, the DRG for organ transplantation already includes an 
allocation for overhead. Since no medical service is associated with 
simply acquiring an organ from an outside agency and then billing 
Medicare for the organ, adding a portion of unrelated administrative 
and general costs is unreasonable.
  For example, if acquiring an organ cost a hospital $10,000, Medicare 
would be billed that amount plus an extra 25 percent, bringing the 
total to $12,500. This process bleeds the system of millions every year 
by charging Medicare more than its share of the overhead costs 
associated with transplants. The 25 percent add-on is not associated 
with medical services to the patient, nor administrative or general 
services other than billing Medicare. If we allow this practice to 
continue, Health and Human Services estimates suggest that this will 
cost Medicare as much as $35 million in 1999.
  The bill would amend title XVIII of the Social Security Act to 
provide for savings in the Medicare Program by reducing overhead 
payment for Medicare transplant centers. It states that hospitals may 
not allocate their general or administrative costs to the acquisition 
cost of organs imported for transplant as they determine costs to be 
reimbursed by Medicare. This is a bill to improve the efficiency of the 
Medicare Program, an objective I believe we all would like to 
accomplish.

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