[Congressional Record Volume 143, Number 12 (Tuesday, February 4, 1997)]
[Extensions of Remarks]
[Page E144]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  SUPPORT GREATER MEDICARE EQUITY AND FAIRNESS BY REFORMING THE AAPCC 
                            PAYMENT FORMULA

                                 ______
                                 

                            HON. JIM RAMSTAD

                             of california

                    in the house of representatives

                       Tuesday, February 4, 1997

  Mr. RAMSTAD. Mr. Speaker, I rise today to introduce legislation to 
respond to an issue of great importance to Medicare beneficiaries and 
health care providers in my district and throughout the country--
reforming the payment 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.
  In 1996, Dr. John E. Wennberg, the director of the Center for the 
Evaluative Clinical Studies at Dartmouth Medical School, published 
``The Dartmouth Atlas of Health Care.'' The atlas shows that the rates 
of hospital beds and physicians per 1,000 residents determines how much 
care 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 consideration last session of the 
Medicare Preservation Act. Regrettably, congressional efforts to reform 
the geographic disparity and inequities in the AAPCC formula were 
denied by the stroke of the President's veto pen.
  The legislation I am introducing today narrows the AAPCC payment gap 
between rural and urban areas 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, taking into consideration uncontrollable factors such 
as wage rates or supply costs. The language also implements a 3-year 
average for the baseline rather than 1 year. This change provides 
greater representation of historical health care costs for an area. 
This bill is based on the Physician Payment Review Commission's ``1996 
Annual Report to Congress.''
  When the Health Care Financing Administration [HCFA] released the 
1997 payment rates for Medicare managed care plans, the agency told us 
that payments nationally to Medicare-managed care plans would increase 
an average of 5.9 percent as of January 1, 1997--significantly lower 
than the 1996 national average increase of 10.1 percent.
  This is good news in terms of the solvency of the Medicare trust 
fund--we need to slow the rate of growth of Medicare spending to stave 
off its imminent bankruptcy. The bad news is that this average increase 
reflects wide variation in percentage increases from county to county. 
Four counties: Valencia, N.M.; and three New York State counties Bronx, 
Monroe and New York, actually will receive negative growth--real 
decreases. Because the actual dollar variations are also extreme, many 
low-payment areas get a double whammy--lower percentage increases off a 
lower base.
  This situation continues a trend inherent in the flawed payment 
formula. The following table illustrates the vast variation between 
counties across the country. I believe it is important to point out 
that even though 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 PAYMENT RATES TO MEDICARE-MANAGED CARE PLANS                              
----------------------------------------------------------------------------------------------------------------
                                                                    1995               1996               1997  
                      Area/county                          1995    percent    1996    percent    1997    percent
                                                         payment  increase  payment  increase  payment  increase
----------------------------------------------------------------------------------------------------------------
National average.......................................     $400       5.9     $440      10.1     $466       5.9
Richmond, NY...........................................      668       6.2      758      13.4      767       1.1
Kern, CA...............................................      439       5.8      478       8.9      512       7  
Hennepin, MN...........................................      359       2        386       7.6      405       4.8
Tulare, CA.............................................      333       2.9      360       7.9      390       8.4
Vernon, WI.............................................      209       6.6      237      13.2      250       5.5
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  The payment rates also illustrate the overall instability and 
unpredictability of AAPCC's--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 contained 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 months 
ahead we can work in a bipartisan, pragmatic way to improve the AAPCC 
payment formula.
  Mr. Speaker, correcting the AAPCC payment formula is vital. The 105th 
Congress has the opportunity to make the formula more equitable. I look 
forward to working with you and my colleagues on the Committee on Ways 
and Means to make the needed changes to the AAPCC payment formula. The 
longer we continue to use the current formula, the longer efficient 
health care markets will be penalized and rural areas will lag behind, 
leaving many Medicare beneficiaries with fewer choices.

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