[Congressional Record Volume 143, Number 14 (Thursday, February 6, 1997)]
[Extensions of Remarks]
[Pages E188-E189]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 THE REHABILITATION HOSPITALS AND UNITS MEDICARE PAYMENT EQUITY ACT OF 
    1997--A BILL TO PROVIDE FOR A NEW PAYMENT SYSTEM FOR PPS EXEMPT 
          REHABILITATION HOSPITALS AND UNITS--THE TIME IS NOW

                                 ______
                                 

                         HON. FRANK A. LoBIONDO

                             of new jersey

                    in the house of representatives

                       Thursday, February 6, 1997

  Mr. LoBIONDO. Mr. Speaker, today 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 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 are commonly known as 
TEFRA limits.
  TEFRA limits were to be a short term solution to reduce the rate of 
increase in hospital payments pending adoption of a PPS for 
rehabilitation hospitals and units. 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.
  Under the current--and flawed--TEFRA system, 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 in 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 the latter 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 faulty and misguided public policy;
  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 faulty and misguided policy; and
  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 billion to 
$3.7 billion. This increase in part reflects the fact that 
rehabilitation services were not widely available in 1983.
  Consequently, many older facilities have had to live with very low 
limits of Medicare reimbursement and have been paid less than their 
costs of operation. To the contrary, many new facilities are 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

[[Page E189]]

Health Care Financing Administration, to design a payment system. This 
work is to be completed before April of this year.
  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, 1998. 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 working with my colleagues to pass this important 
legislation, and welcome cosponsorship of this measure. Any interested 
cosponsors should contact me or Carl Thorsen of my staff.

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