[Congressional Record Volume 143, Number 50 (Thursday, April 24, 1997)]
[Senate]
[Pages S3690-S3692]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         ADDITIONAL STATEMENTS

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                                MEDICARE

 Mr. FRIST. Mr. President, in 1995, my first year in the U.S. 
Senate, the Medicare Trustees told Congress that unless it took 
``prompt effective, and decisive action * * * Medicare will be dead in 
seven years.''
  Two years later, another Trustees' report has been delivered to 
Congress and we are even worse off. We still face the same tough 
choices. We must balance the budget, restore integrity to the Medicare 
trust fund, update the Medicare system and provide consumers with more 
choice--a cornerstone structural change that addresses the long-term 
viability of the Medicare program.
  In the 104th Congress, the U.S. Congress realized that the 
fundamental way to capture the dynamics of change in the health care 
system would be to modernize Medicare by opening it to a broader array 
of private health plans that would compete on the basis of quality and 
not just cost.
  President Clinton embraced this ideal as well by initiating a 
Medicare Choices demonstration and including provisions to expand 
choice, although I feel they are limited, in his February budget 
submission to the U.S. Congress.
  Therefore, Senator Rockefeller and I introduced S. 146, the Provider-
Sponsored Organization Act of 1997. S. 146 expands the current Medicare 
risk contracting program to include PSO's, Provider Sponsored 
Organizations.
  A PSO, very simply, is a public or private provider, or group of 
affiliated providers, organized to deliver a spectrum of health care 
services under contract to purchasers.
  Our bill specifies detailed requirements for certification, quality 
assurance and solvency to ensure that PSO's contracting with Medicare 
meet standards that are comparable to or higher than those for health 
maintenance organizations [HMO's].
  Specifically, the bill provides Federal leadership for States to 
fashion a streamlined PSO approval process that is consistent with 
Federal standards protecting Medicare beneficiaries.
  Second, by providing incentives for PSO's and HMO's to evaluate 
patterns of care, it promotes state of the art continuous quality 
improvement.

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  Third, the bill creates a mechanism by which the Secretary of HHS 
would be allowed, but not required, to enter into partial risk payment 
arrangements with PSO's or HMO's.
  Fourth, it outlines specific solvency standards for PSO's which 
reflect the peculiarities of their operating environment.
  Now, why are PSO's, to my mind, a good place to start in opening up 
and modernizing Medicare to offer our seniors and individuals with 
disabilities more choice of private plan options?
  First, and something very close to me as a physician and as one who 
has spent over 50,000 hours working in hospitals, PSO's will improve 
quality of health care. The creation of PSO's in the Medicare 
environment, I am absolutely convinced, will improve quality.
  It really goes back to personal experience. But the fundamental 
reason is that PSO's are the care-givers. PSO's are the physicians, the 
hospitals, the facilities.
  It is those physicians, those care-givers who are on the front line 
of health care every day. Thus, they are in the best position to 
control, monitor, and demand quality for that individual patient who 
walks in through the door.
  It is my feeling that in a competitive managed care environment, 
PSO's will be at the table competing with insurance companies, 
competing with HMO's. But it is they, because they are the care-givers, 
that can bring to the table that concern for the individual patient, 
and demand quality which will have a spill-over effect in the 
negotiations in the managed care environment. There is an inherent PSO 
emphasis on quality because the people at the table are the people who 
are taking care of the individual patient.
  The second issue around quality, is that S. 146 requires collective 
accountability, where quality and cost are measured by overall practice 
patterns across the entire PSO rather than just case-by-case 
utilization review.
  It used to be that we did not know how to do that. In 1997, we do 
know how to do that. We look at system-wide measures of quality. The 
advantage of system-wide measures, instead of case-by-case utilization, 
is better use of resources, less intrusiveness in the doctor/patient 
relationship, and it is state of the art today. It is built into our 
bill.
  S. 146 requires PSO's to meet new, higher quality standards and they 
must, as spelled out in our bill, have experience in the coordination 
of care. Thus, we will not see the creation of inexperienced groups 
coming forward.

  That is important because of the so-called 50-50 rule, a standard 
which is inappropriately used as a surrogate measure for quality, 
requiring that plans participate in the commercial marketplace.
  Well, today, because of the outline of higher quality standards, and 
because of the requirement for experience with the coordination of 
care, the 50-50 rule does not apply and would be waived for PSO's.
  I should also say that non-PSO Medicare risk contractors, under our 
bill, would be eligible for waiving this quasi-quality measurement as 
long as they met the enhanced quality standards spelled out in our 
bill. Thus, S. 146 sets a new standard for quality assurance, a 
standard that I feel will set the pace for the rest of the industry.
  Mr. President, the Provider Sponsored Organization Act returns to a 
basic concept that applies a lot to what we are doing in the U.S. 
Congress today. This bill will empower providers to become, once again, 
true partners in the clinical decisionmaking process. The PSO really 
does allow physicians, care-givers, and facilities to once again regain 
some control over what goes on at that doctor/patient relationship 
level.
  In the U.S. Congress over the last year we have seen bills, like a 
48-hour maternity stay bill post-birth, and a proposal for a 48-hour 
stay after mastectomy. I have even had proposals come forward to me for 
5-day bills after heart surgery. Well, obviously the U.S. Congress can 
go in and try to micro-manage body part by body part, but I do not 
think that is the direction to go.
  By bringing care-givers to the table, by reenfranchising them, by 
allowing them to once again regain participation in the clinical 
decision-making process, we get out of that business.
  Why? Because at the negotiating table in the managed care environment 
you have physicians and care-givers there speaking for the patient, not 
allowing just cost to drive what goes on in the managed care 
environment.
  In addition, the PSO option will bring coordinated care to more 
communities. Again, this is terribly important because we see so much 
of managed care in urban areas and not in rural areas and not in under-
served areas.
  This bill very specifically has incentives built in it to encourage 
participation in those under-served and rural areas. It will very 
clearly, to my mind, bring managed care, coordinated care, networking 
of care to those communities where it is not an available choice today.
  As you know, managed care has had great difficulty in attracting 
seniors. We know that about three-quarters of the employed population 
are enrolled in coordinated/managed care today. But in Medicare, only 
about 13 percent are enrolled.
  Two reasons. Right now, the rigidity of our Medicare system does not 
allow any other entities besides a very narrowly defined HMO to 
participate in Medicare. We can agree or disagree whether to open that 
system up to a broad array of plans. Indeed, I think this first step of 
a PSO is the most reasonable way to go to begin to expand that choice.
  In the State of Tennessee, the majority of Medicare beneficiaries 
have no choice. There is no HMO, except right in middle Tennessee. 
There are no other plans. Senior citizens have no choice whatsoever in 
Tennessee, except in Nashville, where they can choose one plan today.
  The second reason, is that our seniors are scared their care is going 
to be taken away. They are scared to join managed care because they are 
scared that their local physician will be dropped from the network. 
Many fear that an HMO or managed care plan might drop their physician 
once they join it, and that frightens them a great deal.
  It only makes sense that Medicare beneficiaries will feel much more 
secure about coordinated care knowing that they have the choice of a 
health care plan run by care-givers, run by physicians, nurses, and 
hospitals who are in their own local community. The Rockefeller/Frist 
bill will give them that security.
  PSO's, as I mentioned, do apply particularly well to rural 
communities. Because the doctors and hospitals are already in the rural 
areas, serving the local population, it is easier for them, rather than 
some outside insurance company maybe located 200 miles away, to 
organize, network and provide a coordinated care option for seniors in 
what have been traditionally underserved rural areas.
  Finally, given the fact that Medicare's own trustees have reported 
that the trust fund will soon be bankrupt, Medicare's rate of growth 
clearly must be slowed. The introduction of PSO's will advance market-
based competition within Medicare, which I believe is absolutely 
essential to the long-term integrity of the entire Medicare Program, 
both part A and part B.
  The Provider Sponsored Organization Act of 1997 builds on the PSO 
provision included in the Balanced Budget Act of 1995 [BBA]. The BBA 
created a legal definition of PSO's and developed a definition of 
``affiliated provider.'' S. 146 goes one step further. It defines a 
Medicare Qualified PSO as a PSO that has the capability to contract to 
provide full benefit, capitated, coordinated care to beneficiaries.
  Specific criteria for the direct provision of services by affiliated 
providers are spelled out in the bill. This ensures that all but a 
small fraction of contracted services are provided either under 
affiliation or by participating provider agreements.
  It also ensures that current Medicare provider contracting rules, 
especially those that protect beneficiaries or consumers from financial 
liability in the event of a plan failure, will also apply to PSOs.
  Since Medicare qualified PSOs do not enter the commercial market as a 
health plan in order to contract with Medicare, S. 146 provides Federal 
certification for the first four years, after which transition to State 
licensure is carried out.

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  In addition, this bill requires that the Secretary contract with 
states during that four year period to provide local monitoring of 
ongoing PSO performance, as well as beneficiary access to services. At 
the end of the four year period, State licensure would be required as 
long as State standards are sufficiently similar to the Federal 
standards, and the solvency standards are identical.
  This approach over these initial four years, marries the benefits of 
national standards for a national program with the benefits of close 
monitoring at the State level by State agencies, an approach currently 
used by Medicare in certifying a variety of health care providers.
  The issue of solvency. Last year's Balanced Budget Act mandated that 
the Secretary develop new solvency standards that are more appropriate 
to this PSO, provider-sponsored, environment.
  Similarly, S. 146 recognizes that PSOs are different. They are not 
insurance companies, nor should they pretend to be insurance companies. 
PSOs are the caregivers themselves.
  Thus, it is not necessary, because they are care-givers--physicians, 
nurses, and facilities--for them to go out and contract out or pay 
claims for health care services that they have to go out and 
essentially buy--as insurance companies have to do. Very different. 
This bill establishes these new solvency standards to protect Medicare 
beneficiaries against the risk of PSO insolvency.
  The test of fiscal soundness is based on net worth and reserve 
requirements drawn from current Medicare law and the current National 
Association of Insurance Commissioners' (NAIC) ``Model HMO Act.'' 
Adjustments are made to reflect the operational characteristics of 
PSOs. For example, in measuring net worth, it ensures that health 
delivery assets held by the PSOs, such as the hospital building, are 
recognized just as they are in NAIC's Model HMO Act. Thus, fiscal 
soundness is assured.
  Another issue on which the Rockefeller/Frist bill differs from the 
1995 Balanced Budget Act is that it gives the Secretary authority to 
enter partial risk contracts, either with PSO's or HMO's.
  The Balanced Budget Act required that PSO's take full risk with 
respect to Medicare benefits. While both bills would require that PSO's 
provide the full Medicare-defined benefit package, S. 146 adds a 
partial risk payment method, that is, payment for all services based on 
a mix of capitation and cost. This is actually very important if we 
want to have coordinated care go to our rural communities.
  Now, why is PSO legislation necessary? First, current Medicare 
statute does not allow managed care plans to serve only Medicare 
patients. Instead, currently it requires these types of plans to 
participate also in the commercial market.
  The Balanced Budget Act established the premise, that PSO's should be 
allowed to offer Medicare-only plans. Therefore, the rule that I 
mentioned earlier, the so-called 50-50 rule, is inappropriate under our 
bill for Medicare-only type plans.
  Second, plans today are required to go through the State licensure 
process. Yet, the overwhelming majority of State licensure processes do 
not recognize the fact that PSO's differ from most insurers. Rather, 
States today expect them to look and act like insurers. But they are 
not, they are caregivers.
  Senator Rockefeller and I, in closing, did not introduce this 
legislation to eclipse the current Medicare risk contractors. Rather, 
the Provider Sponsored Organization Act compliments existing HMO 
options in the Medicare program and expands the choices available to 
seniors and individuals with disabilities.
  This bill is narrow. It is focused. It really does not take on the 
broader issues of structural reform that must be addressed in Medicare. 
I would like to see much more choice than this bill, but this is the 
place to start.
  Mr. President, Qualified Provider-Sponsored Organizations will 
challenge all health care organizations participating in Medicare to 
meet the goal of an integrated, coordinated health care system where 
quality, and not just cost, is put forward, where relationships of 
care-givers and their patients is preserved, and where physicians, 
nurses and hospitals come to the table. PSO's will challenge the entire 
system and the result will be higher quality.

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