[Congressional Record Volume 142, Number 137 (Saturday, September 28, 1996)]
[Extensions of Remarks]
[Pages E1785-E1786]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   REFORM THE AAPCC PAYMENT FORMULA FOR GREATER MEDICARE EQUITY AND 
                                FAIRNESS

                                 ______
                                 

                            HON. JIM RAMSTAD

                              of minnesota

                    in the house of representatives

                       Friday, September 27, 1996

  Mr. RAMSTAD.  Mr. Speaker, throughout the 104th Congress, many 
Medicare concerns have been raised that have a significant impact on 
access to health care throughout Minnesota and ultimately to the health 
and well-being of our Nation's health care system.
  Today, I rise to share some thoughts on an issue which knows no 
distinct, definable boundary. It is an issue of great importance to 
Medicare beneficiaries and health car providers in my disrict--
reforming the payment for Medicare risk-based managed care plans.
  But, before I delve into my statement, I want to take a moment to 
salute and thank my good friend and colleague from western Wisconsin, 
Steve Gunderson. I commend him for his tireless commitment to improving 
access to and delivery of quality health care in rural communities. 
During this Congress, as cochair of the Rural Health Care Coalition, 
Steve literally took the bull by the horns to respond to a variety of 
health care issues, especially the need to reform the payment formula 
for Medicare risk-based managed care plans.
  Currently, Medicare payments to risk-based health care plans are 
calculated on the basis of Medicare spending in each county's fee-for-
service section--medical care outside of managed care plans. The 
variation in the adjusted average per capita cost [AAPCC] formula 
reflects different utilization of health care services.
  Dr. John E. Wennberg, director of the Center for the Evaluative 
Clinical Studies at the Dartmouth Medical School recently published 
``The Dartmouth Atlas of Health Care.'' The Atlas definitely documents 
that the rates of hospital beds and physicians per 1,000 residents 
determines how much car Medicare beneficiaries use. Revising the highly 
variable AAPCC payment formula will result in greater equity for 
Medicare beneficiaries regardless of where they live, allowing choices 
among plans and more equitable distribution of out of pocket costs and 
additional benefit packages.
  Because of the need to correct the inequity in the AAPCC payment 
formula for millions of Medicare beneficiaries, I strongly supported 
changes to the formula during the Ways and Means Committee 
consideration of the Medicare Preservation Act. Regrettably, progress 
may be by this Congress to reform our Medicare Program, including the 
geographic disparity and inequities in the AAPCC formula, was vetoed by 
the President.

[[Page E1786]]

  Since that time, I have continued to be concerned about this issue 
and am an original cosponsor of Mr. Gunderson's H.R. 3753, the Rural 
Health Improvement Act. This legislation incorporates a number of rural 
health care reforms including improvements to the AAPCC payment 
formula.
  Title I of this legislation narrows the AAPCC payment gap between 
rural and urban areas by ending the practice of basing the formula on 
utilization rates, and it does so in a budget neutral fashion. At a 
minimum a county would receive 80 percent of the national input-price-
adjusted capitation rate. This change helps reflect the true cost of 
doing business--uncontrollable factors, such a wage rates or supply 
costs. The language also implements a 3-year average for the baseline 
rather than 1 year, which was in the Balanced Budget Act of 1995. This 
change gives greater representation of historical health care costs for 
an area. This provision of H.R. 3753 is based on the Physician Payment 
Review Commission's ``1996 Annual Report to Congress.''
  Realizing reforms to the AAPCC formula are not doable in the 
remaining days of this Congress, it is helpful to know where the debate 
will begin in the 105th Congress.
  About a week before this hearing, the Health Care Financing 
Administration [HCFA] released the 1997 payment rates for Medicare 
managed car plans. What HCFA told us was nationally Medicare risk 
payments will increase an average of 5.9 percent as of January 1, 
1997--lower than the 1996 national average increase of 10.1 percent.
  In terms of the solvency of the Medicare trust fund this is good 
news--slowing the growth of Medicare. The bad news is that this average 
increase reflects wide variation in percentage increases from county to 
county. Four counties: Valencia, NM; and three New York State counties, 
Bronx, Monroe, and New York, actually will receive negative percentage 
decreases. Because the actual dollar variations are also extreme, many 
low-payment areas get a double whammy--lower percentage increases off 
of a lower base.
  This situation continues a trend which is inherent in the flawed 
payment formula. The table below illustrates the vast variation between 
counties across the country. I believe it is important to point out 
that even through the 1996 AAPCC payment increased an average of 10.1 
percent, not all counties shared in the bounty of that increase. The 
same is also true for the 1997 AAPCC payments.
  Counties that typically lost ground were those in efficient markets 
and rural counties with historically lower reimbursement rates. Because 
of these lower payment rates and lower annual increases these regions 
will continue to lack the ability to attract managed case options to 
their area or offer enhanced health care benefits often found in higher 
payment communities.

                              MONTHLY PAYMENTS RATES TO MEDICARE MANAGED CARE PLANS                             
----------------------------------------------------------------------------------------------------------------
                                                         1995                    1996                    1997   
               Area/County                   1995      increase      1996      increase      1997      increase 
                                            payment    (percent)    payment    (percent)    payment    (percent)
----------------------------------------------------------------------------------------------------------------
National Average........................     $400.52         5.9     $440.90        10.1     $466.95         5.9
Richmond, NY............................      668.48         6.2      758.53        13.4      767.35         1.1
Kern, CA................................      439.15         5.8      478.33         8.9      512.08         7.0
Hennepin, MN............................      359.33         2.0      386.77         7.6      405.63         4.8
Tulare, CA..............................      333.96         2.9      360.38         7.9      390.78         8.4
Vernon, WI..............................      209.28         6.6      237.09        13.2      250.30         5.5
----------------------------------------------------------------------------------------------------------------

  The payment rates also illustrate the overall instability and 
unpredictability of AAPCCs--factors that discourage health plans from 
entering new markets and remaining in other markets.
  If there is a silver lining to HCFA's release of the 1997 risk-based 
managed care payment rates it was in Dr. Vladeck's remarks:

       The formula used to set HMO payment rates is flawed. It 
     shortchanges rural areas and markets where care is delivered 
     more efficiently, and may limit beneficiary choice.

  Dr. Vladeck's comments indicate HCFA's understanding of the inequity 
in the current AAPCC formula and the need for change if we are to offer 
all Medicare beneficiaries true choices in the type and form of health 
care they want to receive. I see this as a signal that in the future we 
can work in a bipartisan, pragmatic way to improve the AAPCC payment 
formula.
  Mr. Speaker, correcting the AAPCC payment formula is vital. In this 
Congress, we have come a long way to improve our understanding the many 
dimensions of the AAPCC payment issue and the need to make the formula 
more equitable. I look forward to working with you and my colleagues on 
the Committee on Ways and Means in the future to make the needed 
changes to the AAPCC payment formula. The longer we continue to use our 
payment current formula, the longer efficient health care markets will 
be penalized and rural areas will lag behind leaving many Medicare 
beneficiaries with fewer choices.

                          ____________________