[Congressional Record Volume 143, Number 57 (Tuesday, May 6, 1997)]
[Senate]
[Pages S3999-S4000]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. HUTCHISON:
  S. 700. A bill to provide States with greater flexibility in setting 
provider

[[Page S4000]]

reimbursement rates under the Medicaid Program; to the Committee on 
Finance.


           legislation to repeal certain medicaid provisions

  Mrs. HUTCHISON. Mr. President, today I am introducing a bill to 
repeal the provider reimbursement requirements of the Boren amendment. 
This bill will provide States with greater flexibility in setting 
provider reimbursement rates under the Medicaid Program.
  Under current law, States may set Medicaid payment rates at whatever 
level they choose for home and community-based services, but they must 
meet a minimum standard for nursing home and hospital reimbursement. 
This standard is prescribed by the Boren amendment, which requires that 
providers be reimbursed under rates the State ``finds and makes 
assurances satisfactory to the Secretary are reasonable and adequate to 
meet the costs which must be incurred by efficiently and economically 
operated facilities in order to provide care and services in conformity 
with applicable State and Federal laws, regulations and quality and 
safety standards.''
  Although the law was designed to relax previous standards and 
increase flexibility, unfortunately the opposite has resulted. The use 
of vague and undefined terms in the amendment created 
problems, compounded by the Federal Government's decision not to issue 
regulations defining these terms. To add further confusion, the law, 
while requiring reimbursement rates to be ``determined in accordance 
with methods and standards developed by the State,'' also requires the 
Federal Government to be satisfied with the State-determined rates. 
Implementing this requirement means State Medicaid plans must include 
both State processes for determining rates and the rates themselves, 
which are then subject to approval by the Secretary of Health and Human 
Services.

  Moreover, beyond this federally imposed regulatory nightmare we've 
created for the States, many States, including Texas, have had to deal 
with substantial litigation resulting from the vagueness of the 
statutory language and lack of regulatory definitions. Some courts have 
viewed the Boren amendment as a cost-based payment standard in which 
all cost incurred by the providers must be reimbursed. In these 
instances, States may be liable for significant sums to cover the 
retroactive rate increases ordered by the court for the group of 
providers involved in the suit, even if their rate schedule was 
approved by the Federal Government. In some cases, the additional 
payments made as a result of a court-ordered retroactive rate increase 
are not eligible for cost-sharing from the Federal Government.
  For example, in 1993, the U.S. Court of Appeals for the Fifth Circuit 
found that the State of Louisiana Medicaid agency's findings on 
``reasonable and adequate'' compensation for hospitals were inadequate, 
despite HCFA's approval of the State plan. In New York, the State's 
``minimum utilization adjustment'' decreased reimbursement for 
psychiatric hospitals that operated at less than 75 percent capacity as 
a means to encourage ``efficiency and economy.'' In another New York 
case, however, despite recognizing the many strong policy reasons 
behind the adjustments, the U.S. District Court for the Southern 
District of New York determined the State did not meet the procedural 
requirements of the Boren amendment. The decision not only has resulted 
in unjustified reimbursement increases for under-used facilities, but 
has also tied up the State in continuing litigation over retroactive 
damages.
  Returning to the States the flexibility to negotiate Medicaid 
reimbursement rates would allow them to avoid or mitigate large 
increases in spending because of such suits, and follow the example of 
private-sector purchasers of health care services by selectively 
contracting with hospitals and nursing homes on a competitive basis. 
California's Selective Provider Contracting Program [SPCP] is a good 
example of the economic benefits of this type of program. Because of 
rapid increases in inpatient hospital costs and a budget shortfall, 
California passed legislation in 1982 allowing its Medicaid Program 
[Medi-Cal] to negotiate contracts with providers. SPCP contains the 
overall expenditures for hospital services reimbursed by the Med-Cal 
Program and assures adequate access to quality services for 
beneficiaries through a competitive, rather than a regulatory process. 
The process saves California an estimated $300 million per year. 
Illinois had a similar program for several years and saved an estimated 
$100 million annually, but it was discontinued following a change in 
administrations and a switch to a different system of reimbursement. 
The average Medicaid cost per day in Illinois has since risen 
substantially.
  Both California and Illinois officials have been pleased with the 
high quality of care under this type of system. In addition to relying 
on strict regulations already in place for hospitals, both States 
independently audit hospitals for quality of care. Illinois contracted 
for a 2-year period, which meant that hospitals had to compete often to 
win contracts while maintaining quality standards.
  Mr. President, programs such as those in California and Illinois 
exemplify the efficiency and innovation offered within our Federal 
system. It is time to give other States free rein to experiment with 
similar programs, thus creating a more cost-effective and higher 
quality Medicaid system for their beneficiaries. I hope all my 
colleagues will join me in cosponsoring this legislation to take a 
significant step in the direction of true Medicaid reform.
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